Sharp reversal

(26.8.04) The producer inflation data for July, released by StatsSA shows that the rate of increase recorded was significantly lower than our expectations, says Nico Kelder, economist at the Efficient Group.

The domestic component recorded a 0% m:m increase while the imported component recorded a decline of 0.9% m:m.

The slower than expected rate of increase is (unexpected) good news for the likely future trends in consumer inflation.

Did the MPC, when they decided to cut rates recently, know something we did not?

We still expect the rate of increase in PPI to accelerate over the next few months but we have to admit that we had to ameliorate our inflation outlook after this nice bolt from the blue.

The main surprise came from the domestic component of the PPI which generally increases fairly strongly during July – on a m:m basis there was no change to this index.

The large negative m:m rate of increase recorded in the imported component is naturally related to the stronger currency.