Today, the local data card heats up again with the release of PPI numbers for October. Producer price outcomes are closely watched as a leading view on the direction of consumer prices. Recall that the PPI for final manufactured goods slowed to just 1.0% y/y in September, from 2.8% y/y in August, which was the lowest PPI reading since June 2020. The key driver of producer price slowdown was ‘coke & petroleum’ deflation. Producer inflation in many other categories outside of fuel is bottoming out. This makes sense, given that costs throughout the economy are still subject to lower employee productivity, ongoing infrastructure decay, and rapid administered price increases. As such, while falling fuel inflation will likely continue to feed through to a lower PPI outcome for October, this effect could lose momentum in November, resulting in an accelerating PPI again.

This is one of the reasons the SARB remains as cautious as it is in its monetary easing cycle. It is keeping money supply tight, giving inflation no room to breathe. The SARB is deliberately committed to maintaining subdued inflation and will achieve this through a conservative monetary policy approach. Earlier this week, the IMF endorsed the SARB’s objective of reducing the inflation target, highlighting the significant benefits South Africa could reap from achieving lower inflation levels. “Shifting from the current target band to a lower point target at an appropriate time could help lower expectations and inflation,” it said, adding that “Careful design and gradual implementation will be key to minimise potential near-term output costs.”