Johannesburg, 23 August 2017 – The declining Producer Price Index (PPI) increases chances of further inflation easing in the near future, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Michael Ade said today.
Dr Ade was commenting on today’s Consumer Price Index (CPI) which showed the continued easing of inflation, with the numbers dipping below 5 % for the first time in just under two years. Annual consumer price inflation was 4,6% in July 2017, down from 5,1% in June 2017. The consumer price index increased by 0,3% month on month in July 2017.
He said there was a direct correlation between changes in the PPI at the retail level (finished goods) and consumers at the point of sale.
“It is important to monitor both indicators regularly as the CPI primarily measures inflation while the PPI acts as a preview of changes in the rate of inflation,” Dr Ade said.
SEIFSA anticipates the release of the CPI because of its importance, alongside the PPI, to the metals and engineering (M&E) sub-component of manufacturing. The CPI, alongside the PPI, are key instruments in financial decisions, costs mitigation and contract price adjustments (CPA) by companies in the M&E sector. Accordingly, SEIFSA has developed an input cost index which replicates the average cost structure of the sector, comprising of the CPI and PPI (amongst other cost variables), which are significant components of overheads as used in SEIFSA’s CPA calculations.
“The release is most welcome as the rate stays within the Reserve Bank’s target range and in line with SEIFSA’s expectations. The CPI is the main gauge of prices of goods and services and the release is most welcome to the public as the lower rate will reduce pressure on both over-indebted consumers and companies’ operational costs,” he concluded.
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