Bernice J. Hicks 
At 13.1%, the producer price index (PPI) is at its highest level since October 2008, when it reached 14.5%. The reading was above the consensus forecast of 12.1% and was driven by the usual late suspects – producer prices for fuel and food.
This is also more than double the consumer inflation rate of 5.9%, although it must be said that the link between the two – CPI and PPI – does not seem as strong as it has been. in the past.
Still, producers have passed the costs onto consumers as their margins tighten, and will do so for the foreseeable future.
Among other things, he points to the wisdom of the rate hike cycle that was initiated by the Reserve Bank of South Africa (SARB), which last week raised its key rate by 50 basis points to 4.75%, bringing the prime rate to 8.25%.
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“The 13.1% consensus above clearly indicates why the Sarb is right to worry about pressures on pipelines that could put pressure on consumer inflation,” said Razia Khan, chief economist for the Africa at Standard Chartered Bank in London.
“Recent Sarb research suggesting a weaker relationship in emerging markets, more broadly between PPI and CPI, will help provide reassurance. Nonetheless, the potential for upside inflation risks warrants more accelerated normalization of the Sarb.
Coke, petroleum, chemicals, rubber and plastics saw their prices jump 28.4% year-on-year, Stats SA said. And producer prices for food, beverages and tobacco rose 8.3%.
“The industry relies on diesel to drive the economy and record prices will put further pressure on PPI inflation,” noted Jee-A van der Linde, an economist at Oxford Economics Africa.
“South Africa’s temporary fuel tax reduction will end in May, while the most recent estimates from the Central Energy Fund point to a further multi-rand increase in fuel prices in June.”
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Everything points to higher prices, which will further erode the already limited disposable income of the poor – whose ranks have swelled – the working class and much of the middle class.
Much of this, it bears repeating, can be blamed on Vladimir Putin and his imperialist misadventure in Ukraine. Poor South Africans are suffering because of his frankly baseless worries about NATO.
Analysts still generally expect consumer inflation to peak soon, although this is a moving target and the risks are clearly on the upside. And with producer inflation now stuck in double digits, one wonders if the S-word – stagflation – is a legitimate concern in South Africa.
The latest unemployment data is due next week on Tuesday, and the latest reading was north of 35%. The economy, if population growth is taken into account, is barely expanding. Producer inflation is at levels that will put pressure on producers. And interest rates are rising.
“Stagflation is characterized by slow economic growth and relatively high unemployment – or economic stagnation – which is accompanied at the same time by rising prices”, is how the online site Investopedia defines stagflation.
And that seems like a fairly accurate description of the current South African economy. DM/BM
