Manufacturing industry can expect up tick in coming months

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The manufacturing industry can expect a slight rebound in the coming months as prices of food products, beverages and tobacco products and transport equipment hit a four-month high in July. Picture Henk Kruger

JOHANNESBURG – The manufacturing industry can expect a slight rebound in the coming months as prices of food products, beverages and tobacco products and transport equipment hit a four-month high in July.

July signified a turnaround for the South African economy as the Covid-19 lockdown restrictions were lifted to level three, allowing for greater economic activity.

Data from Statistics South Africa (Stats SA) yesterday (THUR) indicated that the annual producer price inflation (PPI) for final manufactured goods rose notably to 1.9 percent in July, up from 0.5 percent in June.

Producer prices in South Africa increased to 116 points in July from 114.6 points in June.

Stats SA said the headline PPI, a measure of the average change in price of goods sold by manufacturers in the wholesale market during a given period, increased by 1.2 percent month-on-month in July.

Food products, beverages and tobacco products increased by 3.2 percent year-on-year while transport equipment increased by 8.3 percent in the same period.

The main contributor to the headline PPI monthly increase was coke, petroleum, chemical, rubber and plastic products, which increased by 4.8 percent month-on-month.

Investec’s Lara Hodes said the PPI had lifted on the marked easing of petrol price deflation.

“This grouping in which the fuel price dynamics are captured detracted -0.5 percent from the annual topline PPI reading in July, compared to -2 percent in June, on the back of the large increase in July’s petrol and diesel price,” Hodes said.

“Specifically, the petrol price increased by a notable 172 cents per litre in July, further slowing the rate of petrol price deflation to -6.2 percent from -23.7 percent in June.”

“Similarly, diesel price inflation eased to -10.4 percent year-on-year from -26 percent in June, supported by a R169 cents per litre climb in the diesel price.”

The annual percentage change in the PPI for intermediate manufactured goods increased

from 1.4 percent in June to 2.4 percent in July.

The Steel and Engineers Industries Federation of Southern Africa (Seifsa) said the increase in the PPI for intermediate manufactured goods would ease the pressure of struggling businesses as demand stagnates despite easing lockdown restrictions.

Seifsa economist Marique Kruger said the increasing selling price inflation meant that companies now had more leeway to pass cost increases to key players in the market and reduce pressure on margins.

Kruger said companies had resorted to the unsustainable practice of absorbing cost increases that occur within a short space of time in order to retain customers.

“The increase in overall selling prices for July is, therefore, encouraging as it allows increased room for companies to manoeuvre,” Kruger said.

“This is especially given that galloping energy costs and fluctuating imports or logistics costs – underpinned by volatile fuel prices and distorted supply chains – have made it difficult for businesses to pass on cost increases to consumers.”

Source: IOL