Economics Editor

PRODUCER price inflation picked up last month, following a surge in oil prices that did not bode well for consumer prices, economists said yesterday.

Producer prices rose 1% during the month, slowing deflation at the producer level to -0,2% year-onyear, from -1,2% in March.
The figures disappointed the market, coming a day after positive consumer inflation data showed price pressures were stabilising in the economy.

Economists attributed the spike in last month's producer prices to surging crude oil prices , which rose 11,2% during last month, boosting imported inflation by 1,3%.

Economists said the figures were a warning sign that the Reserve Bank's targeted inflation measure , CPIX (consumer inflation less mortgages), could exceed the 6% target barrier before the end of the year.

However, it may not be reason to panic yet, as many economists remain divided about whether interest rates would need to be hiked.
Econometrix Treasury Management analyst George Glynos said yesterday a temporary breach of the inflation target was unlikely to spur the Bank to tighten monetary policy.

"In the latest monetary policy review, the Bank said it won't panic because of a brief break above the target," said Glynos. "I don't think they want to kill off the economy for a marginally higher inflation rate. It also doesn't promote price stability. They are likely to have a more levelheaded approach."

But if crude oil prices remained "stubbornly high", the Bank was likely to hike rates slightly to "stem the second round inflationary effects". High oil prices were expected to dominate the monetary policy committee meeting in two weeks.

Brent crude oil has remained above $35 a barrel since early this month, soaring close to $40 a barrel. It fell to $36 a barrel yesterday on speculation that the Organisation of Petroleum Exporting Countries would increase oil output.

Besides higher oil prices, producer inflation was boosted by higher food prices last month, with processed food prices rising 1,2% month-on-month, boosting domestic producer prices by 0,9%.

But the outlook for manufactured food prices looked better going forward because agricultural food prices, which affect manufactured food prices with a few months' lag, remained subdued.

"Agricultural food prices were very well behaved (last month)," said Merrill Lynch economist Nazmeera Moola. "And since agricultural food prices have stabilised, we expect limited pressure from manufacturing food prices."