Inflation on transport equipment prices contracted 0.2% but vehicle inflation rose, according to data from South Africa’s latest Producer Price Index (PPI).
Overall, the PPI fell lower than market expectations to a five-month low of 2.2% year-on-year (y-o-y) in January, down from 2.9% in December.
This is according to a Nedbank Economic Insights report which confirms that the data came in below Nedbank's forecast of 2.8% and the market consensus of 2.5%.
According to the report, the decline stemmed mainly from sharp drops in fuel prices and moderating food inflation, which offset accelerations in metals, machinery and equipment prices.
Within the coke, petroleum, chemical, rubber and plastic products category, fuel drove the downturn. Petrol prices fell 5.3% and diesel 4.8% y-o-y, aided by low global oil prices and rand appreciation against the dollar. Chemical prices moderated, although rubber and plastic products accelerated to 2.4% for a third month.
Food inflation eased to 0.8% from 1.7% – the lowest since September 2018. This reflected an 8.5% drop in grain mill products, starches, starch products and animal feeds, boosted by a bumper summer harvest.
Meat and related products remained high but eased from 14.8% to 12.5%, while oils and fats fell 3.1% and fruit and vegetables contracted for a third month.
However, prices for metals, machinery, equipment and computing equipment increased by 2.3%, the highest since December 2024. Structural and fabricated metal products inflation rose from 1.7% to 4.3%.
Furniture and other manufacturing accelerated to 12.2%, the highest since September 2022. Textiles, clothing and footwear held steady around 3% for a fourth month.
According to the report, the latest PPI data for intermediate goods stayed elevated at 10.5%, driven by basic precious and non-ferrous metals (up 37.3%).
Mining inflation hit a three-year high of 28.4%, with gold and other metal ores up 23.9% and non-ferrous metal ores 51.3%.
Electricity and water inflation was almost unchanged at 16.7%, while agriculture, forestry and fishing deflation deepened to 5.8%, though live animals and animal products rose 25.5% due to foot-and-mouth disease impacts.
"We expect PPI to rise moderately in the coming months, primarily reflecting a normalisation off last year's low base and higher food and fuel prices," the report states.
Food pressures will centre on meat due to ongoing foot-and-mouth issues and vaccine delays, although easing is anticipated by April.
Fuel prices will be tempered by lower global oil prices and a steady rand. However, the bank said electricity tariffs remained a concern, with approved increases of 12.7% in 2025 and 8% each in 2026 and 2027.
Nedbank forecasts PPI averaging 2.6% in 2026 and 2.9% in 2027, revised down from 3.5% and 3.0%.
"Muted PPI against a backdrop of patchy domestic demand and excess capacity in some industries implies that the pass-through to consumer inflation should remain limited in the short term," the report says.
This outlook, combined with subdued growth, is seen as supporting South African Reserve Bank rate cuts.
“We believe that the benign inflation outlook, together with subdued growth outcomes, should persuade the SARB to resume its cutting cycle in the second quarter. Consequently, we forecast two 25-basis-point cuts in the repo rate in May and July, bringing it to 6.25%,” Nedbank says.
