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High PPI makes June rate hike more likely, say experts

By unknown | Apr 25, 2008 | COMMENTS [ 0 ]

Robert Laing

Robert Laing

Factory gate prices defied expectations by worsening in March, raising the likelihood of another interest rate increase when the Reserve Bank's Monetary Policy Committee meets in June.

March's year-on-year producer price index (PPI) rose to 11,8percent from February's 11,3percent.

Dawie Roodt, economist at Efficient Group, said: "I am afraid all these price increases from producers will start filtering to consumers. This does not bode well for consumers going forward."

As in March's consumer price index (CPI) data, the biggest jump in prices over the year was for vegetable oil.

Margarine and salad dressing makers paid 70percent more for oil seeds and 63percent more for fats and oils this March than the same month last year.

This means cooking oil prices are boiling up faster for factories than households, which saw a 52percent year-on-year rise for fats and oil prices in March, according to the CPI data.

Factories generally see price changes before consumers, so March's rise bodes badly for expectations that CPI has peaked.

Stanlib economist Kevin Lings said: "Pushing interest rates higher at this stage runs the risk of harming the consumer and the broader economy at a critical time, without substantially bringing down PPI or CPIX inflation.

"However, the Reserve Bank clearly feels the need to contain inflation and wage expectations and consequently a rate hike, as unfortunate as that might sound, cannot be ruled out in June."


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