Johannesburg, 12 December 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is disappointed by the latest Consumer Price Index (CPI) figures, which indicate that inflation increased further in November 2018, despite the decision by the South African Reserve Bank to raise the repurchase rate by 25 basis point to 6,75% from 6,50% last month in an effort to contain inflation within the mid-point of its 3-6 percent target band.
The CPI figures released by Statistics South Africa (StatsSA) today indicate that the annual consumer price inflation increased to 5.2 percent in November 2018, from 5.1 percent in October 2018. On a month-on-month basis, the CPI increased by 0.2 percent in November 2018.
SEIFSA Economist Marique Kruger said given that the demand for the Metals and Engineering (M&E) cluster’s intermediate products is a derived one based on consumer spending, the persistent rise in inflation is cause for concern.
However, Ms Kruger said the increase in the CPI was expected going into the festive season, underpinned by a seasonal pattern of higher consumer spending, galloping November fuel prices and a generally upward-trending Producer Price Index (PPI) for both the intermediate and final manufactured goods. The concern is that the increasing trend in inflation is likely to continue in the near term, compelling consumers to cut back on spending for final manufactured goods which warrant the use of intermediate manufactured products of the M&E cluster of industries as inputs.
“The latest inflation data is disappointing and does not augur well for businesses in the M&E cluster of industries and the broader manufacturing sector. The concern is that companies will continue to face headwinds, including higher interest rates, operational expenses and inflationary intermediate inputs costs,” Ms Kruger said.
In addition, she said it was worrying that the PPI data to be released tomorrow is likely to maintain its upward pressure on inflation.
SEIFSA closely monitors the release of both the CPI and PPI data for final and intermediate manufactured goods, amongst other indicators of its price and index pages (PIPS), due to their importance to the M&E sector. Both indices are used by companies in the secto in financial decision-making processes towards costs mitigation r through, for instance, Contract Price Adjustment processes.
In conclusion, Ms Kruger said despite the difficult operating environment, companies should capitalise on the prevailing signs of a silver lining to build on lower fuel prices for December and slowly improving domestic demand, reduce operational costs and positively boost margins and profit levels.
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