Making stuff cheaper as PPI falls again

Statistics South Africa have released their PPI or Producer Price Index data.The PPI essentially measures the rising costs of making stuff. It takes the input costs at the factory and then tracks how much those costs rise by when they get to the factory gate and become the components in CPI or consumer inflation. The figures show that stuff is actually getting cheaper to produce, although it appears that these savings are not being seen by consumers. So what are the figures?

 

• Domestic output -0.1%
• Exported commodities -6.4%
• Imported commodities -12.3%

 

There is a discrepancy here. The CPI or consumer inflation is still going up. It is currently at 6.3% and outside of the target band set by the Reserve Bank of 3 to 6 percent. This is worrying in that it appears that savings and price increases that have contracted in the manufacturing sector are not being passed onto the consumer. The PPI is a precursor to the CPI and movement in one should track through into the other.

If PPI is falling, as it has been, for a number of months, the question that needs to be asked is why are consumer goods still going up when the cost of producing them is actually dropping. The answer seems to be that retailers are indulging in a bit of profit taking and not passing savings onto consumers. This means that you need to get tighter with your budget plan as even though the economy is improving the difficulties are not over yet.