South Africa’s producer prices recorded a year-on-year decline of 0.7% in October, marking the country’s lowest producer price index (PPI) reading to date.
This downturn follows a 1% increase in September, providing an unexpected relief for economists who had projected a PPI static at 0.0% and 0.5%.
According to Statistics South Africa (Stats SA) yesterday, the decline was predominantly influenced by lower fuel prices, which created significant downward pressure particularly in the coal and petroleum sectors.
As global crude oil prices softened, the local market also benefited from a stronger rand, which collectively drove the costs of petrol and diesel down sharply. In fact, Brent crude oil prices fell by 24.6% from September, leading to petrol prices decreasing by 22.2% and diesel by 26.9% in October.
Despite the overall dip, producer inflation for key sectors told a mixed story.
The disinflation witnessed in coke, petroleum, chemicals, rubber, and plastic products not only continued for a second month but also doubled the rate of contraction from the previous month, plunging by 10.1% compared to last month’s 5%. This sizeable contraction highlighted the influence of lower fuel costs on the broader economy.
Conversely, the manufactured food price inflation dipped slightly to 3.4% year-on-year from 4.1% in September, with food products, beverages, and tobacco accounting for a substantial 29.16% of the PPI. This category contributed 1.0% to the annual topline number, which is a slight decrease from 1.1% recorded in September.
Nonetheless, rubber and plastic products exhibited a continued upward trajectory, climbing to 7.6% from 5.6%.
On the machinery and equipment front, inflation eased to 3.1%, with notable declines observed in structural and fabricated metal products and general and special purpose machinery. Moreover, inflation in the food, beverages, and tobacco products category also saw a minor easing, with the rate falling to 3.6% after rising to 3.8% in September.
On a monthly basis, Stats SA said the producer prices decreased by 0.7% in October, following a 0.3% drop in September.
Nedbank economist Johannes (Matimba) Khosa said the pronounced deceleration in producer inflation was primarily due to last year’s high base and significantly lower fuel prices.
Khosa said that as the base effect gradually reverts, factory prices may trend upwards throughout 2025, but suggested that any increase would likely be constrained by subdued global and domestic price pressures.
“Despite supportive weather conditions, food prices will likely rise off a lower base, partly due to higher global prices. Fuel prices will probably ease further, albeit at a slower pace, due to subdued global oil prices caused by muted world demand,” Khosa said.
“However, the uncertainty surrounding the Israel-Hamas tensions raises concerns of a possible resurgence in oil prices. The rand remains resilient but lost some ground following the US elections. Although the pressure of domestic structural inefficiencies on operating costs has eased notably in 2024, it remains high and continues to pose an upside risk to producer prices. We forecast PPI to end 2024 at 2.4%, averaging 3.3% for the full year.”
As it stands, the rand showed resilience but faced depreciation following the recent US elections. Although the downward pressure on operating costs has notably eased in 2024, domestic structural inefficiencies continue to pose a heightened risk to pricing stability.
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