Worst of rand's impact is yet to come

Impact at consumer level will be felt in March/April Alan Peat THE LATEST figures on the producer price index (PPI) indicate that there has been a delayed impact on local prices from last year's depreciating rand. "More than sobering," said Standard Bank economist, Monica Ambrosi. "They confirm our fears that the worst is yet to come." The lag between a pickup in price pressures at the producer level and that at the consumer level is estimated to be approximately six months, she added. "On a month-on-month basis, PPI started picking up steam in October last year," Ambrosi told FTW. "This means that the impact of rand depreciation at the consumer level may only become more strongly evident around March/ April." The negative impact of the rand's precipitous slide at the end of last year is "starkly evident", Ambrosi added, in the contribution of the imported component to overall PPI in January. The first bad news was the annual "all items" PPI jumping up to 11.5% from 8.3% in December. But worse was to come when the annual figures for the "domestic" and "imported" elements of producer inflation were separated. On a year-on-year (y/y) basis the domestic element rose from 8.4% in December to 10.7% in January. But the imported inflation really leaped up - from 7.8% to 13.8% This was equally evident on a month-on-month basis. Domestic rose from 0.1% to 2.8% - but imported from 1.9% to 5.5%. "At the imported level, the detrimental impact of rapid rand depreciation is evident across a considerable number of categories," said Ambrosi. "These include chemicals and chemical products; non-electrical machinery and equipment; mining and quarrying; transport equipment; and basic metals. "The net effect on overall PPI was broad-based price increases." Although initially expected to be worse, the January consumer inflation numbers were not too bad. But Ambrosi expects these to get progressively worse through to the second quarter of the year. "Given the latest producer inflation numbers and the Finance Minister's fiscal injection into the domestic economy," she said, "the SA Reserve Bank's stance is expected to become more conservative." The SARB's monetary policy committee is scheduled to meet on March 13 and 14 - and Ambrosi expects the bank to increase interest rates by at least 50 basis points.