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Frederick Mitchell
October 31, 2024

Producer Price Inflation

In September 2024, South Africa’s producer price inflation slowed to a 1.0% annual increase, down from 2.8% in August, with a monthly deflation of 0.3%. Key contributors included rising costs in food, beverage, and intermediate goods, while mining costs fell. Concerns remain over elevated water and electricity prices exceeding the SARB’s target range.

In September 2024, producer price inflation experienced a significant slowdown. The annual increase in producer inflation was recorded at 1.0%, down from 2.8% in August, with a monthly deflation of 0.3%. Production costs for food and beverage items rose by 3.8% in September, contributing 1.1 percentage points to the month’s overall producer inflation. Additionally, the categories of metals, machinery, equipment, and computing reported lower-than-expected price increases, climbing 3.4% year-over-year compared to 3.5% in the previous month, and adding 0.5 percentage points to total producer inflation.

Several segments within the producer price inflation basket experienced deflation once again. Significant declines were noted in the coke, petroleum, chemicals, rubber, and plastic products categories, which fell by 2.1% year-on-year, leading to a reduction of 0.5 percentage points in overall producer inflation.

Production costs for intermediate goods saw a slight increase from 4.2% in August to 4.8% in September, with no month-on-month price escalation. The main contributors to the annual increase included the chemicals, rubber, and plastic products category, which rose by 8.1% in September, adding 2.5 percentage points to total intermediate producer inflation, and basic and fabricated metals, which increased by 3.6%, contributing an additional 1.7 percentage points. Meanwhile, the costs of water and electricity remained elevated, with a 9.8% annual rise in September, up from 7.1% the previous month.

In the primary sector, mining costs further contracted by 4.8% following a contraction of 1.7% in August. In contrast, the agricultural sector reported a 3.6% increase in production costs, a decrease from 6.1% in August.

Overall, the trend in producer price inflation is positive for general inflation expectations in South Africa, as producer inflation serves as a leading indicator of overall inflation in the country’s economic landscape. However, the continued rise in prices for intermediate goods, especially for water and electricity, remains a concern since these rates exceed the South African Reserve Bank’s (SARB) target range of 3% to 6%. The current producer inflation figures suggest a potential reduction in overall consumer inflation in the coming months, which is favourable for our interest rate and demand forecasts for the remainder of 2024.

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A View on Demand in the Economy: Retail Sales Performance

In 2024, South Africa’s retail sales rose by 6.3%, significantly surpassing the expected 2.1% increase, indicating a rebound in consumer demand. Key contributors included substantial growth in general dealers and household goods. Lower inflation and a potential interest rate cut could further enhance consumer optimism and spending moving forward.

Consumer Inflation

Inflation in South Africa rose slightly from 2.8% in October to 2.9% in November, driven mainly by housing and utilities, food, and miscellaneous goods. Despite price increases, there are signs of slowing growth. The MPC’s recent 25 basis point interest rate cut may ease financial pressures on consumers, supporting future demand and economic momentum.

Manufacturing Production

In 2024, South Africa’s manufacturing production rose by 0.8%, following a 1.4% increase in September. Key contributors included significant growth in petroleum, food, and basic iron and steel sectors. Despite a decline in the motor vehicle sector, the manufacturing industry remains vital, employing 1.6 million people and driving economic growth.

Challenges, Changes, and New Horizons

To reflect on 2024, what a remarkable year it has been! There were significant developments both locally and globally—not just economically but politically as well. We can all agree, “what a year it has been!”

Mining Production and Sales

Mining South Africa rose by 1.4% in October 2024, building on a solid 4.9% growth from September. Key contributors included significant increases in iron ore, platinum group metals, and diamonds. Mineral sales also increased by 1.6%. Despite some challenges, the sector is rebounding strongly, supporting over 484,000 jobs. With improved economic confidence and a focus on stabilising production, the future looks promising for South Africa’s mining industry.
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