Producer inflation continues to moderate as it enters single-digit territory
Producer price inflation slowed to 8.6% y/y in April from 10.6% y/y in March. The moderation in producer inflation was faster than Bloomberg's consensus expectation of 9.0% y/y. In April, producer prices remained steady (0.0%) compared to March. It has taken sixteen months for producer inflation to move to single digits from 10.8% y/y in December 2021, when it first lifted to double digits. Producer inflation then went on to peak at 18.0% y/y in July 2022. The continued moderation in production inflation corroborates our view of continued moderation in consumer prices on the retail floor.
Intermediate producer price inflation, a measure of product prices as they enter the production process, fell to 4.6% y/y in April after remaining steady at 5.0% y/y in February and March. This reflects a significant deceleration from a peak of 23.1% y/y in November 2021 and indicates continued healing of supply chains. Generally, this is positive for the manufacturing sector. However, the ongoing electricity crisis remains a significant production cost driver, constraining manufacturing production capacity.
Year-to-date (January - April) producer inflation has averaged 11.0% y/y, marginally lower than the 11.4% y/y average over the same period last year. Amongst the larger categories, YTD moderation in producer inflation reflects petroleum-related product prices, which are up by 13.4% YTD compared to 24.9% in the corresponding period last year, while prices of metals, machinery, equipment and computing equipment are up by 9.2% YTD, reflecting a moderation from 13.0% y/y over the corresponding period last year. Meanwhile, YTD upward pressure on producer inflation primarily comes from manufactured food price inflation which is up by 12.7% YTD compared to 7.8% YTD in 2022, transport equipment which is up by 11.9% YTD compared to 8.2% YTD in 2022, paper and printed products prices which are up by 15.6% YTD compared to 6.2% in the corresponding period last year, and prices of textiles, clothing and footwear which are up by 8.2% YTD compared to 4.4% YTD in 2022.
Outlook
We maintain that producer price inflation should continue moderating and, with today's outcome, should average around 7.0% this year, from 14.3% last year, partly assisted by base effects, improving supply chain conditions, and softening domestic demand. Persistent load-shedding and a weaker domestic currency still pose an upside risk to producer inflation.
