Skip to main content
Invest Now
012 012 5270
Copyright © Aluma Capital (Pty) Ltd. All rights reserved.
Aluma Capital (Pty) Ltd is a registered Financial Services Provider (FSP 46449) in terms of The Financial Advisory and Intermediary Services Act (37 of 2002)
Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd
Frederick Mitchell
September 26, 2024

Producer Price Inflation

Producer Price Inflation came increased by only 2.8%, much lower than market expectation of 4.0% for the month of August 2024. The lower-than-expected increase in producer inflation bode well for general inflation in the months to follow, but caution should be taken by the price increases in intermediate goods, especially price increases of administered goods and services such as water -and electricity prices and other municipal services that could affect inflation rates going forward.

Producer price inflation saw a significant decline in August 2024, falling from 4.2% in July to just 2.8%, with a modest monthly increase of 0.3%. Production costs for food and beverage items rose by 3.6% in August, contributing 1.1 percentage points to the total producer inflation for the month. The categories of metals, machinery, equipment, and computing also showed lower-than-expected price increases, rising by 3.5% year-on-year and adding 0.5 percentage points to overall producer inflation. The coke, petroleum, chemicals, rubber, and plastic products increased by 2.1% annually.

Some segments within the producer price inflation basket experienced deflation. Notable contractions were seen in the coke, petroleum, chemicals, rubber, and plastic products, which declined by 0.5% year-on-year, and the metals, machinery, equipment, and computing sector, which also contracted by 0.5% in August.

Production costs for intermediate goods remained steady at 4.2% from July to August 2024, with a slight monthly increase of 0.2%. The main contributors to this increase were basic and fabricated metals (2.2 percentage points) and chemicals, rubber, and plastic products (1.2 percentage points). Meanwhile, price increases for water and electricity remained high, registering a 7.2% annual rise in August, down from 10.2% in the previous month.

In the primary sector, mining costs contracted by 1.7%, an improvement from the 2.1% contraction seen in July 2024. Conversely, the agricultural sector recorded a 6.1% increase in production costs, up from 5.0% in July.

Overall, the trend in producer price inflation is encouraging for general inflation expectations in South Africa, as producer inflation is considered a leading indicator of overall inflation in the country’s economic context. However, the continued rise in prices for intermediate goods, particularly water and electricity, remains a concern, as these rates exceed the South African Reserve Bank’s (SARB) target range of 3% to 6%. This situation could hinder the further decline of inflation and impede potential interest rate cuts by the SARB’s Monetary Policy Committee (MPC) in the coming months.

Back to News

More Coverage

Budget Speech 2025

A Balancing Act
Much has happened in the last twelve months as well as the last month since the postponement of the February 2025’s budget. The big talking point and “bone of contention” was the mooted 2% increase in VAT. This increase was met with fierce resistance and made “balancing the budget” quite difficult, as the government has to decide between increasing taxes of cutting expenditures, leaving the Government of National Unity (GNU) between a “rock and a hard place” as it currently stands. The increase in VAT or other taxes sprout from the various expenditure items the government announced or want to implement which among other things include the National Health Insurance (NHI), a transformation fund and continuation of the Covid-19 relief grant and the possible introduction of a Basic Income Grant (BIG).

A View on Company Profits

2024 Q4
Company profitability is vital for investors and the government. In South Africa, the Gross Operating Surplus (GOS) indicates positive growth, with profits surpassing inflation in late 2024. Notable gains in the Agricultural sector (68.8%) contrast with modest growth in Mining and Personal Services, reflecting an optimistic economic outlook post-election.

A Sticky Affair

The South African Budget Speech Postponement
The Laffer Curve is an economic theory that describes the relationship between tax rates and tax revenue. Proposed by economist Arthur Laffer, the curve suggests that there is an optimal tax rate that maximizes government revenue without discouraging productivity, investment, and economic growth. The central idea is that increasing tax rates beyond a certain threshold can lead to diminishing returns; higher taxes may disincentivize work, entrepreneurship, and investment, ultimately reducing the overall tax base.

GDP, Economic Growth and Inflation

2024 Q4
The South African economy showed resilience with a 0.6% growth in the fourth quarter of 2024, despite challenges. Key sectors like Agriculture and Finance thrived, and improved consumer demand signals optimism for 2025. With continued market confidence and government reforms, there is potential for significant economic advancement ahead.

Private Sector Credit Extension (PSCE)

January 2025
In January 2025, credit demand rose by 4.6%, exceeding expectations, although overall demand is still modest. Interest rate cuts are expected to enhance property and asset purchases as disposable incomes improve. As consumers increasingly rely on credit, overall demand for goods and fixed assets is poised to rise throughout 2025
0:00
0:00