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PPI significantly lower than expected - economist

by Michael Appel
on 31 Jul 2008
BuaNews Online
BuaNews Online

Factory gate prices for June 2008 has surprised many economists coming in significantly under what was expected at 16.8 percent year-on-year (y/y) for June 2008, reported Statistics South Africa (Stats SA), Thursday.

"The figure is significantly lower than what the market expected, it's a high figure, but a positive one.

"We [at the Bureau for Economic Research] expected the Production Price Index to come in at 18.1 percent, which is quite conservative as other economists were forecasting above 19 percent.

"We factored in a 37.5 percent winter tariff increase on top of the 27.5 percent granted to Eskom by the National Energy Regulator of South Africa [Nersa], so that's probably why its lower," economist at the BER, Christelle Grobler, told BuaNews on Thursday.

Eskom, she said, had likely delayed the implementation of its winter tariff hike and could possibly bring it in by August 2008.

According to Stats SA, the higher PPI figure for June can be explained by increases in the price of petroleum and coal, chemicals and chemical products, as well as electricity.

"The annual rate [of change in the price of petroleum] increased from 33.9 percent at May 2008 to 40.4 percent at June 2008.

"[Electricity prices] increased from 9.4 percent at May 2008 to 10.9 percent at June 2008," said Stats SA.

With regard to the latest PPI figures impacting on the Monetary Policy Committee's (MPC's) decision on interest rates when they meet again in August, Ms Grobler said the MPC needed to remain forward looking.

"They [as the MPC] should be mindful of the fact that everything they have done until now still needs to filter through into the economy as it takes about 18 months.

"The BER, however, does not foresee any further increases in the interest rate. We actually predict that the MPC will announce three 50 basis point cuts by June, August and September of 2009," she said.

Using the current inflation figure, as opposed to the lower reweighted inflation figure to be implemented by Stats SA in January 2009, the BER expects inflation to fall within the 3-6 percent inflation target band by quarter two of 2010.

"Using the new inflation figure, we expect inflation to dip within the target band by the fourth quarter of 2009," Ms Grobler explained to BuaNews.

With regard to the lowering oil prices and what South Africans can expect at the petrol pumps in August, she highlighted that over-recovery on petrol stands at over 30 cents at the moment.

The Stellenbosch-based think tank expects over 60 cents over-recovery in the next two months, which will bring the price of unleaded petrol back below the R10 level.

Oil is expected to stay around the $124 mark this year, and average about $110 per barrel next year.

This, she said, means South African motorists could be smiling a lot more by next year this time with significant fuel cuts on the way. - BuaNews

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