The reading was significantly higher than market expectations and reflects the impact of rising oil prices during the month amid heightened tensions in the Middle East.
Image: TV BRICS
South Africa's factory gate inflation accelerated far more sharply than expected in May as higher fuel costs rippled through the manufacturing sector, raising concerns that businesses and consumers could ultimately bear the burden, according to Business Report.
The latest data from Statistics South Africa (Stats SA), released on Thursday, showed that final manufactured producer price inflation (PPI) climbed to 7.8% year-on-year in May, up from 4.8% in April. Producer prices also increased by 2.6% compared with the previous month.
The stronger-than-anticipated reading largely reflected the impact of elevated oil prices during May, when tensions in the Middle East pushed Brent crude above $100 (R1,647) a barrel.
Investec economist Lara Hodes said the outcome came in above expectations, noting that the oil price shock translated into another steep increase in local fuel prices during May.
"Specifically, petrol and diesel prices rose by a marked R3.27/litre and R5.27/litre respectively. The general fuel levy cut was extended into May, preventing larger upside pressure," she said.
The coke, petroleum, chemical, rubber and plastic products category accounted for 4.7 percentage points of the annual headline PPI rate and contributed 2 percentage points to the monthly increase.
Hodes said that although progress had been made towards easing tensions in the Middle East, the risk of renewed conflict remained.
"The Brent crude price has in turn fallen substantially, which will see fuel price cuts effected in July, even after fuel levy adjustments," she said.
She added that food inflation remained relatively subdued, with food products recording monthly inflation of 0.1%, lifting the annual rate to 0.9% in May from 0.3% previously. The food products, beverages and tobacco products category contributed 0.6 percentage points to the headline figure.
"Oil prices have, however, dropped significantly, which could limit upside price pressure," Hodes said.
She also noted that a breakdown of the food basket showed meat and meat products inflation easing significantly to 0.1% year-on-year, from 1.0% in April and 8.3% in March, supported by favourable base effects and increased slaughtering activity.
According to the Agricultural Business Chamber of South Africa (Agbiz), poultry production conditions also remain favourable.
Agbiz said grain mill product prices declined by a further 9.1% in May, following a 9.2% decrease previously.
"Ample harvests are expected to continue exerting downward pressure on food prices this year. Specifically, the summer grains and oilseeds production is forecast at a record 21.1 million tons, up 2% from the 2024-25 season," Agbiz said.
The Nedbank Group Economic Unit said May's PPI figure exceeded both its own forecast of 6.4% and the broader market expectation of 6.7%.
"The largest contributor to the rise was a sharp increase in fuel costs. PPI will remain elevated in June before starting to moderate in the second half of the year," it said.
"Overall, the inflation outlook has improved following the reopening of the Strait of Hormuz, which has depressed the Brent crude oil price to near its pre-war level."
Professor Waldo Krugell, an economist at North-West University, said some of the higher production costs would inevitably be passed on to consumers.
"If it's in PPI a part of it will feed through to consumers in the end," Krugell said.
Efficient Group chief economist Dawie Roodt said the sharp increase in producer inflation was in line with expectations given the jump in petroleum prices during May.
"PPI does not include any services, it's just underlying goods. What happened in May there was a huge increase in petroleum prices due to the increase in oil and that reflected in PPI," Roodt said.
"This will filter through to the consumer price index but it does not mean that CPI will increase to 7.8% as PPI only includes goods but we can expect a filtering through."
IOL Business