Significant 3.1% drop in factory gate prices

The annual change in the PPI is due to decreases in the annual rates of change for petroleum products and coal, electricity, mining and quarrying, and agricultural products, said Stats SA.

“These decreases were partially counteracted by increases in the annual rate of change for basic metals ... [which] increased from 46.5% at August 2008 to 49.9% at September 2008.”

More good news for South African consumers in the midst of global economic turmoil, a depreciating local currency and slump in commodity prices, is that Stats SA reported a drop in inflation.

The Consumer Price Index excluding mortgage rate changes (CPIX) for September 2008 dropped for the first time this year by 0.6 percentage points from 13.6% to 13%.

Although the CPIX has been outside the South African Reserve Bank's inflation target band for over 15 consecutive months, the drop in inflation is the first positive sign that Reserve Bank Governor Tito Mboweni's tightening monetary policy is starting to bare fruit.

A drop in demand for credit on the back of diminishing disposable income means South Africans consumers are feeling the effects of high interest rates and have cut back on spending money they don't have.

The motor industry is one of the industries which has seen one of the biggest drops in sales since the inflationary cycle began in June 2006. The housing sector has also experienced a drop in prices.

Speaking at the Reserve Bank following the two-day meeting of the Monetary Policy Committee (MPC) which saw the repo rate left unchanged at 12%, Mboweni said the Bank expected inflation to peak at 13.3% in quarter three of this year, averaging 6.9% in 2009.

Senior economist at Econometrix Tony Twine told BuaNews at the time that there was a general consensus that the MPC would keep rates unchanged, especially in the wake of conditions prevailing on global markets.

"The expectation is that rates would remain unchanged, however, there are some optimists that still hope for early interest rate cuts.

"Rate cuts are expected sometime between January and August next year, or from about the second or third quarter," said Twine.

Raising the interest rate would make life very difficult because of the weak state of sectors of the real economy at the moment, Twine said.

There are fears that due to the significant weakening of the Rand and slump in commodity prices that the MPC might consider raising interest rates in December, but economists warn that growth of the economy would slow significantly should such a decision be taken.

Article published courtesy of BuaNews