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PRESS RELEASE – 2014/10/31: SEIFSA WELCOMES MODERATING PRODUCER INFLATION, BUT WARNS OF A POTENTIAL UPSIDE

By 30th Oct 2014Sep 20th, 2019No Comments

“We have previously cited weak domestic fundamentals as contributing significantly to this easing production inflation, a view we still hold. Lower international food prices and easing commodity prices can also be attributed to this trend,” said SEIFSA Economist Tafadzwa Chibanguza.

The PPI for intermediate manufactured goods rose by 7% when September 2014 is compared to September 2013. This is up from the year-on-year 6.7% recorded in August.

Mr Chibanguza said that given sharp depreciation in the currency in September, this increase in the index was largely to be expected.

On a trade day weighted-average basis, the Rand depreciated by about 3% between August 2014 and September 2014 and by about 6% when the first and last days in September are compared.

“Chronologically, the impact of the variables affecting prices would first be observed in the PPI for intermediate manufactured goods, domestic producers would then pass through those costs into the products they produce, which is when we would see upward pressure in the final manufactured goods and, lastly, the final pass-through would be to the consumer, observed in the consumer price index,” Mr Chibanguza said.

Muddying the waters further were recent developments in the United States (US), with the US Federal Reserve stopping its quantitative easing (QE) programme and adopting a hawkish approach to the US economy.

“While the expectation is to start increasing their interest later in 2015, the end of the QE programme will undoubtedly place significant pressure on emerging-market currencies, with the tap of cheap money from the US drying up,” Mr Chibanguza said.
Therefore, the risk to domestic inflation was inherent in currency fluctuation for the foreseeable future. However, the declining brent crude oil prices were expected to create a counteracting effect.

“Transport makes up a significant input cost for producers and will, therefore, offer some reprieve to domestic production costs,” concluded Mr Chibanguza.

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