JOHANNESBURG, 30 NOVEMBER 2017 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is encouraged by the latest data on Producer Price Index (PPI) for intermediate manufactured goods, released by Statistics South Africa, which signals a continuous improvement in selling price inflation in the metals and engineering (M&E) sector.
Economist Marique Kruger commented that the PPI for intermediate manufactured goods, which measured factory gate prices, increased from 2.1 percent year-on-year in September 2017 to 4.1 percent year-on-year in October 2017.
“The increase is inconsistent with both the annual change in the PPI for final manufactured goods which slowed down to 5.0% in October 2017 from 5.2% in September 2017; and the October headline consumer inflation figures, which dipped to 4.8 percent in October 2017 from 5.1% in September 2017,” said Ms Kruger.
She said: “The improvement in PPI data for October 2017 provides a welcome relief for producers in the M&E sector going into the festive season.”
She added that the data is the best measure of selling price inflation in the M&E sector and the consistent improvement from July 2017 to October 2017 enables producers to plan productive processes in advance. This also augurs well for the expansion of fixed capital stock which measures the long run productive efficiency of the sector.
Ms Kruger said: “With producers in the sector operating under increasingly difficult business conditions, volatility in cost escalations and fuel prices, the improving PPI for intermediate manufactured goods index will help in improving margins in the sector. Fuel is an important component of SEIFSA’s composite input cost index and although more favourable base effects in fuel contributed in decreasing the PPI for final manufactured goods in October 2017, it accounted for a significant increase in selling price inflation in the M&E sector.”
She said that the expectation is for a continuous improvement in the PPI for intermediate goods index in November 2017, driven by higher demand-driven food prices going into the festive season.
“Generally, an increase in the PPI for intermediate manufactured goods bodes well for producers in the M&E sector. The M&E sector represents 60 percent of the weight of the index and it is a good aggregate indicator of the ability of the sector to increase its selling prices (selling price inflation). Healthy positive differential in the selling price inflation and input cost inflation is necessary not only to sustain current businesses but to also help create new businesses in the medium to long term,” Ms Kruger concluded.
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