Increased Selling Price Inflation Offers Strained Businesses Room To Manoeuvre On Costs, Says SEIFSA

 JOHANNESBURG, 27 AUGUST 2020 – The increase in the Producer Price Index (PPI) for intermediate manufactured goods in the Metals and Engineering (M&E) sector is expected to ease the pressure of struggling businesses as demand stagnates despite easing lockdown restrictions, the Steel and Engineers Industries Federation of Southern Africa (SEIFSA) said today.

The data released by Statistics South Africa (Stats SA) this morning indicates that the annual percentage change in the PPI for intermediate manufactured goods increased from 1.4% in June to 2.4% in July. The increase is consistent with the annual change in the PPI for final manufactured goods, which also increased from 0.5% in June to 1.9% in July.

According to SEIFSA Economist Marique Kruger, the increasing selling price inflation means companies now have more leeway to pass cost increases to key players in the market, thereby reducing pressure on margins.

“Businesses are generally struggling and continuous increases in operating costs and erratic energy supply are straining business operations, impacting negatively on their competitiveness,” Ms Kruger said.

“The increase in overall selling prices for July is, therefore, encouraging as it allows increased room for companies to manoeuvre. This is especially given that galloping energy costs and fluctuating imports or logistics costs – underpinned by volatile fuel prices and distorted supply chains – have made it difficult for businesses to pass on cost increases to consumers,” she said.

Instead, companies have resorted to the unsustainable practice of absorbing cost increases that occur within a short space of time in order to retain customers, especially if they had already recently adjusted their selling prices, Ms Kruger added.

She added that  factors such as the recent reintroduction of load shedding – which is a significant challenge for energy-intensive M&E industries – and prevailing uncertainty due to the Coronavirus pandemic – even as lockdown restrictions continue to be relaxed –  pose major challenges to both industry stakeholders and policy makers as these may lead to a further slowdown in growth, employment and investment.

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