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Lower PPI further good news for consumers

by BuaNews Online
on 29 Jan 2009
BuaNews Online
BuaNews Online

The Producer Price Index (PPI) for December 2008 dropped by 1.6 percent to 11 percent year-on-year (y-y), lending further good news to hard-pressed South Africans awaiting an interest rate cut.

Statistics South Africa (Stats SA) on Thursday said the lower PPI figure was due to decreases in the price indices of forestry, food at manufacturing, petroleum and coal products, and mining and quarrying products.

These decreases were, however, partially counteracted by increases in the factory gate prices of basic metals, electricity and agricultural products.

Economist at Econometrix Treasury Management (ETM) Russell Lamberti told BuaNews the figure is positive and came in lower than was expected.

"It's a pretty good figure and came in lower than expected.

"This is a sign that there is deflation on the producer side and this is the effect of commodity prices falling," Mr Lamberti said.

The lower PPI figure would feed into the consumer side and food price inflation was likely to moderate on the heels of the rising food price crisis that hit consumers in 2008.

Despite the PPI coming in lower than the market expected, Mr Lamberti believes the Reserve Bank's Monetary Policy Committee (MPC) are more likely to cut rates by 50 basis points than by a full 100 basis points.

"I'm going for a 50 basis point cut, but it is a difficult choice...the MPC can't be seen to be chasing down inflation and there is a need for predictability and stability.

"Inflation is coming down but the rand is still vulnerable," he said.

The MPC, who decided to cut interest rates by 50 basis points in December 2008 for the first time since June 2006, are meeting to discuss the repo rate on 4 and 5 February 2009. - BuaNews

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