PPI peace of mind
31 July 2008

PPI was expected to be at 17.2 percent year-on-year, a survey by I-Net Bridge found, with forecasts ranging widely from 16.4 percent year-on-year to 18.6 percent year-on-year.
Economists react to the PPI data:

Mike Schussler, T-Sec:

"That's a nice surprise. But I still got a feeling that PPI will still go up. The fact of the matter is 16.8 percent is still quite a big number for PPI and it shows that inflation hasn't peaked, so my argument is weighted on a rate hike next month."

Jeff Gable, Absa:

"We haven't seen the breakdown yet, but there are two elements here. The first is that it just shows what a difficult environment we are in when the actual number of 16.8 percent actually beats the consensus forecast!  "Secondly, the fixed income market is seeing a small rally, similar to what we saw yesterday with the CPIX number. That indicates the market is willing to look through what will be a very difficult next couple of months to what looks to be a better inflation outlook next year."

Annabel Bishop, Investec:

"PPI inflation came out slightly lower than expected. Higher electricity prices at the onset of winter will have pushed up the PPI, with the moderation in rand oil prices insufficient to provide a counterbalance.   "We expect no more interest rate hikes this year as the SARB estimates that the monetary policy transmission mechanism impacts inflation with a lag of twelve to 24 months, (arguably shorter by some) and we believe under the re-weighting that CPIX inflation will regain target in H2.09.   "The sharp drop in the level of inflation in 2009 is also likely to cause the SARB to cut interest rates significantly in H1.09 next year as the newly weighted (and substantially lower) CPIX inflation series becomes a fact. Demand has also slowed sharply and debt servicing costs have risen to 1999 levels."

Elize Kruger, Kagiso Securities:

"Better than expected at last. Overall, I don't think it will have a determining impact on the interest rates decision next month, but build on a case for an unchanged stance. I think the Reserve Bank will be looking more at the oil price, the rand exchange rate and the CPIX reweighting in making its decision."

I-Net Bridge, www.iafrica.com