JOHANNESBURG, 29 JULY 2021 – The rise in producer price inflation (PPI) does not bode well for the overall domestic inflation outlook as producers pass on costs to consumers, who are already under financial strain, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today. Data released today by Statistics SA showed PPI for final manufactured goods rose to 7.7% in June from 7.4% in May 2021.
Metal products, food products and computing equipment were among the largest contributors to the increase. Prices for intermediate manufactured goods increased to their highest level this year at 16.4% in June. This is the category within which most Metals and Engineering sector products fall. The mining sector remains a key raw material supplier to the M&E sector and mining PPI highlights the input costs pressures facing the sector. PPI in mining remains above 20% level from the May 2021 movement, averaging 17% in the six months to June.
SEIFSA Chief Economist Chifipa Mhango said rising PPI remains a concern for the M&E sector and as long as producers pass on cost increases to consumers, margins will remain tight. “While PPI could easily translate into increased revenue due to higher prices, in a depressed market it is more likely to lead to smaller sales volumes
as financially strained consumers prioritise food and transport over goods such as household appliances,” Mr Mhango said. Mr Mhango noted that while it is encouraging that consumer inflation remains within the monetary policy target range of 3% to 6%, having come in at 4.9% in June 2021, after a slight decrease from 5.2% in May, the cost of living continues to rise as a result of higher food and transport costs.
Globally, PPI is also trending upwards as projected by SEIFSA. Global PPI has picked up to levels averaging above 5% amid resurgent global demand and supply constraints.