Mining producer inflation driving overall PPI higher, says SEIFSA

Mining producer inflation driving overall PPI higher, says SEIFSA

JOHANNESBURG, 24 JUNE 2021 – The rise in producer price inflation (PPI) is concerning, given that it was driven mainly by mining – a key supplier of Metals and Engineering (M&E) industry raw material, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.

Data released by Statistics SA showed that producer price inflation of final manufactured goods rose from a low level of 3.5% in January 2021 to a highest level of 7.4% in May. One of the biggest contributors to this increase was the mining sector, whose producer inflation shot up from 10.8% in April to 21.7% in May. Mining producer inflation has averaged 16% since January, putting pressure on the financial position of M&E producing companies with regards to cost of production.

SEIFSA Chief Economist Chifipa Mhango said other contributing factors to PPI were rising transport and energy costs. “As producer prices increase, this has implications towards the overall picture of consumer prices. Manufacturers take in costs of production such as electricity costs, transport costs, as well as mining products into their price-setting equation. Producers are passing on these costs to consumers, and this is evident in consumer price inflation numbers, which show that inflation rose from 4.4% in April to 5.2% in May,” he said. 

Prices for intermediate manufactured goods increased from a low base of 8.6% in January to 15.2% in May. “Although this is positive news for the producers of intermediate goods in M&E sector in terms of potential revenue, in a depressed market this might negatively impact key consumer market affordability, resulting in lower sales volumes,” Mr Mhango said. 

Mr Mhango noted that globally, producer price inflation will continue to pick up amid increased global economic activity as COVID-19 vaccines are rolled out in advanced economies. He said that the latest data shows that PPI in the eurozone is at 7.6%, while it is 9% and 6.6% in China and the US respectively. “This could be a concern on the global inflation outlook,” he said.

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