PPI comes in lower at 10.3%

The July 2007 PPI figure follows a downward trend that began in June of this year when PPI jumped from 11.3% in May to 10.4 in June.

According to Stats SA data, the lower PPI figure can be attributed to decreases in the annual rates of change in the production price indices for basic metals, chemical products, transport equipment, medical, precision and optical instruments, and petroleum and coal.

The production price of petroleum and coal decreased substantially from 15.1% in June to 9.4% in July 2007.

These decreases, however, were slightly counteracted by increases in the annual rate of change for tobacco products, mining and quarrying products, rubber and plastic products, electricity, and agricultural products which increased by 2.2 percentage points to 22.7%.

On a month-to-month basis, the PPI for all commodities for consumption in South Africa increased by 1.6% following on the 2.1% monthly increase in June.

The annual percentage change in the PPI for locally produced commodities is slightly lower at 10.6%, compared to June's 10.8%.

Speaking to BuaNews on Thursday, Senior Economist and Director at Econometrics Tony Twine said many economists were disappointed the decrease in PPI wasn't bigger.

"The reason for the decrease not being as much as expected was due to the spurt in food price inflation month-on-month, as well as the uplift in minerals including the importation of oil," said Twine.

The PPI, he explained, especially with regard to agriculture and food price inflation tends to lead CPI and CPIX in a three month knock-on or "feeder effect".

Many analysts predicted PPI would fall within the single digit range for July; however, Twine said many underestimated the market movement in food and minerals.

He highlighted the Reserve Bank will be focussing on money supply issues ahead of the October Monetary Policy Committee (MPC) meeting.

"Since June 2006 when interest rates started to climb, the rate of growth of money supply via credit extension will be watched," he said, adding, "They [the MPC] will be trying to put a lid on credit."

With regard to when the National Credit Act (NCA) – which came into effect on 1 June of this year - would start registering an effect on money supply, Twine said: "We're expecting to see some influence by the time we get to see September's money supply data, which will be in October."

Some economists are hard pressed that October's MPC meeting will ring in yet another interest rate hike, however, Twine said: "We're putting our money on the fact that they won't hike interest rates."

Sharing his sentiment, economist at the Bureau for Economic Research (BER) Christelle Grobler told BuaNews: "We've reached [an interest rate] peak, so we [at the BER] do not foresee another interest rate hike in October."

Article published courtesy of BuaNews