Higher PPI doesn’t mean manufacturing is out of the woods yet

Despite the improving trend in selling price inflation for intermediate manufactured goods, companies are still constrained by derived logistics costs from high fuel prices and the double whammy of rising prices and higher prime interest rate.

This from Dr Michael Ade, Steel and Engineering Industries Federation of Southern Africa (Seifsa) chief economist, who pointed out that businesses in the metals and engineering (M&E) cluster were unlikely to benefit from an increase in the selling price inflation in October 2018.

He was responding to the recent release of Producer Price Index (PPI) figures by Statistics South Africa (StatsSA), showing that the annual percentage change in the PPI for final manufactured goods was 6.9% in October 2018, compared to 6.2% in September 2018.

The data also showed a 1% increase in the PPI for intermediate manufactured goods.

“However, given that most of the intermediate goods produced in the M&E cluster are further utilised in the production of final manufactured goods which are largely purchased by domestic consumers, the reverse knock-on effect on the M&E cluster will be huge,” warned Ade.

“Looking at the direct correlation that exists between changes in the PPI at the retail level (finished goods) and consumers at the point of sale, increases in both inflation and the cost of borrowing will adversely affect the speed at which intermediate manufactured goods leave the factories, steel mills, foundries, smelters and warehouses,” he highlighted.

“Given these constraints, businesses are unlikely to benefit from prevailing increasing selling price inflation as it becomes difficult to pass price increases on to the final consumers continuously,” said Ade.

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