Johannesburg, 25 October 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the continuous improvement in the Producer Price Index (PPI) for intermediate manufactured goods, as published by Statistics South Africa (Stats SA) today.
Speaking after the release of the figures, SEIFSA Economist Marique Kruger said the data had improved consecutively from March this year, alongside the PPI for final manufactured goods, with the latter slowing down in September 2018. This was good for businesses in the Metals and Engineering (M&E) cluster against the backdrop of increased volatility in imported input prices as a result of a generally weak exchange rate.
The StatsSA data showed that on a year-on-year basis, the PPI for intermediate manufactured goods increased to 7.7 percent in September 2018, from 5.9 percent recorded in August 2018, while the PPI for final manufactured goods for the broader manufacturing sector also registered an almost lateral increase of 6.2 percent in September 2018 on a year-on-year basis.
“Given that the PPI for intermediate manufactured goods has maintained an upward trajectory since the first quarter of 2018, businesses should be able to leverage off the improvement in selling price inflation. Business conditions have generally been tough. Domestic producers are struggling to move stock out of the warehouses amid low levels of domestic demand and higher intermediate input costs. This is compounded by increasing energy and fuel prices and a weaker exchange rate, which further add to the individual cost curves of businesses,” Ms Kruger said.
She added that it was crucial that a positive differential between input cost inflation and selling price inflation be maintained in order for the M&E cluster of industries to be attractive to investment, as investments are often driven by the return on investment. A positive differential enables manufacturers to pass cost increases onto the market, thus enabling businesses to improve their margins.
Ms Kruger said SEIFSA would continue to monitor the trends.
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