Ayanda Shezi

Economics Correspondent

PRODUCER prices accelerated to their fastest pace in three-and-a-half years, with the producer price index (PPI) climbing 8,1% year on year in July, as oil prices continued to climb and the rand weakened.

The numbers indicate that price pressures continue to mount in the local economy, strengthening the case for further interest rate hikes.

Trade data, also released yesterday, show that the trade deficit widened further last month as well, suggesting that the current account balance remained under pressure in the second quarter.

Analysts said yesterday that although the trend of inflation remained firmly upward, September is likely to provide some relief in the form of lower petrol and maize prices.

The PPI figures, which tend to lead consumer inflation by a few months, are likely to give an indication of the future path for consumer prices.

“Pipeline pressures are building up, and concerns that this may filter through to retail prices are rising,” said Standard Bank economist Elna Moolman yesterday.

“The real concern about the data is that it reflects broad-based price pressure at the factory gate,” she said.

Up to now, any surprises in the numbers were usually limited to specific, isolated components.

Statistics SA yesterday unveiled the figures, which showed that PPI rose 1,7% month on month.

July’s 8,1% rise is up from the previous month’s 7,5%.

The outlook for inflation is largely dependent on the performance of the rand, as well as that of oil and food prices, analysts said.

Consumer inflation figures, released earlier this week, show that CPIX (consumer price index less mortgage costs) rose 4,9% year on year in July, slightly above the expected 4,7%.

“The latest PPI data together with CPIX inflation and credit growth data, certainly provide the Reserve Bank with very good reason to hike interest rates by a further 50 basis points at the next MPC meeting,” said Stanlib economist Kevin Lings.

The locally produced component of PPI was up 1,6% in the month, and 8,1% on an annual basis, while the imported component rose 2,2% in the month, and 8,2% year on year.

A breakdown of the main contributors shows that mining and quarrying prices rose 4,9% in the month, while prices of products of petroleum and coal were up by 5%. Together this contributed 0,6% to the monthly increase in PPI.

Food at the agriculture level was up 0,6%, while prices at the factory gate rose 1,8%. Together, these added 0,3 percentage points in the month.

The electricity component contributed 0,2% as tariffs increased 5,4% in the month, against a 44,1% increase in June, the first month this year in which Eskom introduced higher winter tariffs.

Some developments bode well for the PPI outlook, said NKC economist Hugo Pienaar. “Oil declined by around $10 a barrel and local maize futures by more than 7% this month,” he said.