Price pressures in SA Economy to increase further

The Numbers

 

PPI December 2007: 10.3% (yoy) up from 9.1%; 0.5% (mom)

Local PPI December 2007: 10% (yoy) up from 9.7%

Import PPI December 2007: 11.3% (yoy) up from 7.3%

PRICE PRESSURES IN SA ECONOMY TO INCREASE FURTHER

 

PPI in December shot up to 10.3% from 9.1% in November. This brought the average for the year to 10% which is 30% higher than the 7.7% of 2006.

PPI for December was mainly driven by import prices which increased by 11.3% (7.3% in November). Higher imported oil prices exerted most of the pressure on Import PPI. According to Stats SA the Mining and Quarrying category, which largely comprise oil, was responsible for 6.6 percentage points of the 11.3% increase. As a result import inflation contributed 0.3 percentage points of the 0.5% month on month increase in PPI.

The higher PPI means more pressure can be expected on CPI to increase in the future (as it takes 2-3 months for price pressures to work its way to consumer prices). A higher CPI will also mean that the gap between CPI/CPIX and PPI is closing very fast – something Dynamic Wealth predicted a long time ago.

However, though CPIX might increase by more than 9% in February, Dynamic Wealth maintains its view that interest rates should be kept on hold. Especially as clear signs are emerging that rate increases did its work by stemming demand. Now it is up to the authorities to let the impact work its way through the financial system – and for the government to start playing its role in its fight against inflation.


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