Industrial producers face tough conditions despite rising prices, Newsline

JOHANNESBURG – Industrial producers are set for a tough trading period in the near term due to a recessionary economic environment despite prices rising more than expected in August.

Data from Statistics South Africa (StatsSA) yesterday showed that the annual producer price inflation (PPI) for manufacturing hit a five-month high in August.

PPI rose 2.4percent in August from 1.9percent in July, beating market expectations of a 2.1percent gain.

It was the highest producer inflation since March, boosted by prices of transport equipment, food products, tobacco products, and paper and printed products.

StatsSA said costs decreased less for coke, petroleum, chemical, rubber and plastic products and non-metallic mineral products.

On a monthly basis, prices inched up 0.7percent following a 1.2percent increase in July and above the market consensus of a 0.45percent rise.

Dr Michael Ade, chief economist for the Steel and Engineering Industries Federation of Southern Africa, said the data was encouraging, particularly considering that selling prices had been rising since the lockdown.

Ade said the inflationary trend augured well and should help in reducing operational cost pressures on businesses and boost margins, since companies will now have the leeway to pass cost increases on to intermediate and final consumers.

“Businesses have operated under increasingly difficult conditions, unpredictable electricity supply, distortions in the local and regional supply chains, insufficient domestic demand, variable input cost prices and persistent operational costs, despite not manufacturing or selling,” Ade said.

StatsSA said grain mill products inflation remained elevated but moderated to 9.7percent year-on-year from 10.5percent in July.

In the petroleum category, which holds the second-largest weighting of 19.38percent in the PPI basket, there was a decrease in the magnitude of the negative contribution to -0.4percent in August compared with -0.5percent in July from the moderation in the annual rate of deflation to -1.9percent year on year. The prices of petrol and diesel increased by 5cents per litre and 45c per litre respectively, yielding annual rates of change of -6.7percent year-on-year for petrol and -6.3percent for diesel.

The annual percentage change in the PPI for intermediate manufactured goods was 3.2percent in August compared with 2.4percent in July.

StatsSA said the index increased by 1.6percent month-on-month. PPI for electricity and water decreased slightly to 6.7percent in August, compared with 8.1percent in July, decreasing by 2.2percent month on month.

The annual percentage change in the PPI for mining was 26.6percent in August while the PPI for agriculture, forestry and fishing was 6.5percent in the month compared with 2.5percent in July.

Investec economist Kamilla Kaplan said producers were still constrained by the Covid-19 impact from passing on the price increases to consumers.