February 27, 2004
By Quentin Wray
Johannesburg - Continued rand strength kept factory gate prices, as measured by the producer price index (PPI), unchanged in January for the second consecutive month, Statistics SA said yesterday.
Producer prices came in 1.4 percent lower than the same month last year. This was the fifth consecutive month of falling annual producer prices.
The main reason for the annual decline in PPI was that the price of imported goods fell 8.9 percent in the year and 0.7 percent in January.
A stronger currency makes imports, which are priced in dollars, euros or yen, cheaper in rand terms. Local manufacturers, forced to compete for market share, also moderate their price increases to retain customers.
The producer price of locally made goods rose 1.4 percent in the year and 0.2 percent in the month.
Economists, however, say the days of falling producer prices are coming to an end and that producer inflation will be in the region of 6 percent to 7 percent by December, putting upward pressure on consumer inflation and interest rates, although not enough to force a rate hike this year.
Independent economist Noelani King Conradie said the data "provided a further indication that inflation at the producer level has bottomed".
Investec's Annabel Bishop said PPI would start increasing in coming months because of upward pressure from food prices.
King Conradie said inflation's domestic component signalled that domestic price pressures were starting to build up again.
This was confirmed by the recent Investec Purchasing Managers Index, compiled by the Bureau for Economic Research, which showed that industrialists anticipated significantly higher prices in the next six months and that they believed producer price deflation had bottomed out.
Pressure on producer prices will come mainly from food, analysts predict.
Prices at the farm gate were 1.8 percent higher in January than in December, following a 3.8 percent increase in that month.
The prices of grain products rose 12.8 percent in January and 7.3 percent in December.
The PPI data follow Wednesday's release of consumer price data by Stats SA.
Publisher: Business Day
Source: Business Day