Hilary Joffe
19 December 2008
Johannesburg — PLUMMETING global commodity prices saw inflation at SA's factory and mine gates fall more than expected last month.
This is expected to help drive consumer price inflation downwards next year, and provide further support for interest rate cuts.
Statistics SA said yesterday that producer prices fell 1,3% last month, and that year-on-year producer price inflation fell to 12,6%, from 14,5% in October. The market forecast had been 13,7%.
The figures come after consumer price inflation fell to a slightly higher than expected 12,1% last month from 12,4% in October, continuing a downward trend expected to become sharper in the first half of next year.
But economists say the producer price inflation (PPI), which Stats SA revised and reweighted in January, is no longer very useful as a predictor of consumer price inflation.
PPI is, essentially, a measure of the prices of the goods SA produces rather than those consumers actually use.
It measures the prices of outputs in manufacturing, mining, agriculture and electricity, rather than across the entire economy.
Almost a fifth of the PPI basket is now mining and quarrying, including commodities such as gold, platinum and iron ore that are produced largely for export.
The PPI measures only the prices of goods, not of services, although services make up a significant part of the basket used to measure consumer price inflation.
Producer price inflation peaked at 19,1% in August and has since come down rapidly.
Citibank economist Jean Francois Mercier said that it would probably go back to single digits within a few months.
Efficient Group economist Fanie Joubert said that despite the annual rate for basic metals easing slightly to 47,7% last month from October's 50,3% it remained the largest contributor to the annual change in PPI.
Electricity price inflation has also accelerated sharply, with costs rising by an average 23% in the past five months against 7% in the first half of the year.
But the steep drop in oil prices provided much of the downward pressure on the PPI, with inflation in petroleum and coal products falling to 4,8% year on year last month.
Agricultural food prices dropped 6,4% over the year, with grain prices down 11,4%, which could ease the price of staple foods.
The Reserve Bank expects inflation to fall within its 3%-6% range by the third quarter of next year.
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