PRICE pressures at the production level rose more than expected last month, supporting views that more rate hikes could be on the cards if these filter through to consumer prices.
Producer inflation has increased more quickly than consumer inflation in recent months. This is a sign that manufacturers are not passing higher costs on to consumers yet, but this is likely to change, with the effect of the weaker rand starting to be more pronounced on consumer inflation, which is measured by the consumer price index (CPI).
The rise in the producer price index (PPI) for final manufactured goods quickened to 7% last month compared to a year ago and from 6.5% in December‚ Statistics SA figures showed on Thursday. This was higher than a BDlive median consensus forecast of 6.8% from a survey of eight economists.
BNP Paribas Cadiz economist Jeffrey Schultz said higher manufactured and agricultural prices could be the quickest to filter through to consumer inflation.
"Both manufactured goods and agricultural PPI prices have started to tick up quite significantly over the last few months and it sits with our view that the weaker rand, coupled with higher domestic maize prices, will continue to push domestic food prices higher in coming months," Mr Schultz said.
The PPI for final manufactured goods rose 7%, while agriculture, forestry and fishing rose 5.6% year on year.
Investec chief economist Annabel Bishop said that producers had made use of the new year to pass through significant price hikes.
If producer inflation filtered through to consumer inflation more vigorously and caused CPI to be much higher than the Reserve Bank’s forecast, it would support economists’ views that another interest rate hike would happen sooner rather than later.
The Bank forecast CPI to breach the 3%-6% target range in the second quarter of this year, and its monetary policy committee unexpectedly raised interest rates by 50 basis points last month.
Views differ on when the next rate hike will be, with some economists saying next month and others in July.
"We only expect one further hike of 50 basis points this year, in July," Ms Bishop said.
The recent rally in the rand against the dollar is mitigating inflation concerns.
Barclays Africa South Africa strategist Mike Keenan said the stronger trend in the rand was partly reflective of the market’s view that rates would be hiked again this year, likely next month.
"The higher than expected PPI data have certainly kept the idea of further hikes alive."
Nedbank economist Busisiwe Radebe said if the rand had maintained weaker levels of above R11/$, the Bank would likely have been more inclined to hike rates at its meeting next month. "However‚ the recent strengthening of the rand through R11/$ has cast doubt on our view of a 50-basis-point hike in March," she said.
With Ntsakisi Maswanganyi
Annabel Bishop, Investec’s chief economist in South Africa. Picture: FINANCIAL MAIL
PRICE pressures at the production level rose more than expected last month, supporting views that more rate hikes could be on the cards if these filter through to consumer prices.
Producer inflation has increased more quickly than consumer inflation in recent months. This is a sign that manufacturers are not passing higher costs on to consumers yet, but this is likely to change, with the effect of the weaker rand starting to be more pronounced on consumer inflation, which is measured by the consumer price index (CPI).
The rise in the producer price index (PPI) for final manufactured goods quickened to 7% last month compared to a year ago and from 6.5% in December‚ Statistics SA figures showed on Thursday. This was higher than a BDlive median consensus forecast of 6.8% from a survey of eight economists.
BNP Paribas Cadiz economist Jeffrey Schultz said higher manufactured and agricultural prices could be the quickest to filter through to consumer inflation.
"Both manufactured goods and agricultural PPI prices have started to tick up quite significantly over the last few months and it sits with our view that the weaker rand, coupled with higher domestic maize prices, will continue to push domestic food prices higher in coming months," Mr Schultz said.
The PPI for final manufactured goods rose 7%, while agriculture, forestry and fishing rose 5.6% year on year.
Investec chief economist Annabel Bishop said that producers had made use of the new year to pass through significant price hikes.
If producer inflation filtered through to consumer inflation more vigorously and caused CPI to be much higher than the Reserve Bank’s forecast, it would support economists’ views that another interest rate hike would happen sooner rather than later.
The Bank forecast CPI to breach the 3%-6% target range in the second quarter of this year, and its monetary policy committee unexpectedly raised interest rates by 50 basis points last month.
Views differ on when the next rate hike will be, with some economists saying next month and others in July.
"We only expect one further hike of 50 basis points this year, in July," Ms Bishop said.
The recent rally in the rand against the dollar is mitigating inflation concerns.
Barclays Africa South Africa strategist Mike Keenan said the stronger trend in the rand was partly reflective of the market’s view that rates would be hiked again this year, likely next month.
"The higher than expected PPI data have certainly kept the idea of further hikes alive."
Nedbank economist Busisiwe Radebe said if the rand had maintained weaker levels of above R11/$, the Bank would likely have been more inclined to hike rates at its meeting next month. "However‚ the recent strengthening of the rand through R11/$ has cast doubt on our view of a 50-basis-point hike in March," she said.
With Ntsakisi Maswanganyi
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