South African Producer Prices Rose 5.8% Using New Index

The cost of goods leaving South African factories rose 5.8 percent in January from a year ago, according to a new index compiled by the statistics office.

Producer-price inflation for final manufactured goods slowed from 6.3 percent in December, Statistics South Africa said in a report released in the capital, Pretoria. Prices rose 0.5 percent in the month.

South Africa reduced the number of items in the basket used to calculate PPI to 273 from 800 and now publishes separate indexes for agriculture, mining, electricity and intermediate manufactured goods. The steps were taken to bring the index in line with international standards, the agency said.

“The new headline PPI fundamentally differs from the previous estimates and they are therefore not comparable,” Elna Moolman, an economist at Renaissance Capital, said in e-mailed comments. “Headline PPI inflation is still reasonably well-contained, with no immediately different read-through to the outlook for consumer-price inflation. The rand is in our view still the key risk to the inflation trajectory.”

The Reserve Bank has held its benchmark interest rate at 5 percent, the lowest level in more than 30 years, since a surprise cut in July. The bank’s mandate is to keep consumer-price inflation within a range of 3 percent to 6 percent. It fell to 5.4 percent in January from 5.7 percent in the previous month.

Weaker Rand

A weaker rand is adding to price pressures. It has dropped 6.9 percent this year against the dollar, the worst performer of the 25 emerging-market currencies tracked by Bloomberg.

“The market is interpreting this as an upside surprise,” Carmen Nel, an economist at Johannesburg-based Rand Merchant Bank, said in a phone interview. “There does seem to be quite a bit of currency pass-through evident.” If it broadens, there may be an impact on consumer inflation in the next three to six months, she said.

The rand depreciated 0.2 percent to 9.0985 per dollar as of 12:19 p.m. in Johannesburg, down from 9.0677 before the release of the data. Yields on benchmark government 10.5 percent bonds due December 2026 fell 1 basis point, or 0.01 percentage point, to 7.36 percent.

PPI calculated under the old method was 5.2 percent in December, the same as the previous month.

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