Producer inflation up 6.2% in March, driven by food, fuel price increases

The annual rate of producer price inflation climbed to 6.2% in March, mainly driven by increases in fuel prices and manufactured food price inflation.

According to data released by Stats SA on Thursday, February’s annual rate of producer inflation was 4.7%.

The main contributor to the annual increase in March was the category of goods that includes coke, petroleum, chemicals, rubber and plastic products. This was followed by the category including food, beverages and tobacco products.

The paper and printed products category was another major contributor, according to Stats SA.

Higher than expected

Investec economist Lara Hodes noted that the market consensus was for producer inflation to be 5.5%.

“This higher-than-expected outcome was underpinned primarily by a marked pick-up in inflationary pressures within the coke, petroleum, chemical, rubber and plastic products category of the PPI basket,” she said.

“Notable hikes in both the petrol and diesel price in March of 74c/litre and 91c/litre respectively drove inflation within this category,” she explained.

This category of goods makes up 20.2% of the producer inflation basket.

“Pressure from fuel prices is not set to abate in the short term as the Central Energy Fund announced marked April price increases of 131c/litre and 82c/litre for petrol and diesel respectively, with the addition of the fuel and Road Accident Fund levy hikes, outlined in the 2019 Budget, effective from April. 

“This will put further pressure on the already constrained producer,” Hodes warned.

Stats SA also showed that the prices of intermediate manufactured goods increased 6.3% in March 2019, compared to 3.9% reported in February.

The annual increase in water and electricity prices was 5.9% in March, compared to 7.5% reported in February. For mining, inflation was 20.2% in March, compared to 10.6% in February. Inflation in the agriculture, forestry and fishing sector was -0.4%, compared to -2.2% in February.

Hodes noted that the surging administered prices, like electricity, remain a concern for manufacturers.

“This, coupled with rising domestic food prices, a highly volatile international oil price and global growth trepidation, continue to weigh on the inflation outcome,” Hodes said.