Johannesburg 28 October 2021 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the consistent increase in the Producer Price Index (PPI) for intermediate manufactured goods published by Statistics South Africa (Stats SA) today. The improvement in the data, which is used as a proxy for selling price inflation, is good for the Metals and Engineering (M&E) Sector, as it reflects an uptick in the PPI for intermediate manufactured goods since it boosts supply-side dynamics in the Metals and Engineering (M&E) cluster.
The latest data published by Stat SA indicates that the annual percentage change in the PPI for intermediate manufactured goods, which is a measure of factory gate prices, increased from 17.7 percent in August 2021 to 19.5 percent in September 2021. The annual PPI for final manufactured goods also increased from 7.2 percent in August 2021 to 7.8 percent in September 2021. Latest PPI data builds on last month’s data and provides distressed businesses with a glimmer of hope to manoeuvre around cost-push inflation.
An increasing trend in the PPI for intermediate manufactured goods bodes well for the broader manufacturing sector and the M&E sector, this is good news for producers in the M&E sector, who finally have some lee-way to recover the losses incurred as a result of volatile input costs.
Disconcertingly, factors such as the on-going and persistent load shedding by ESKOM continuous, amongst other factors, to be a serious challenge to energy-intensive metals and engineering industries. Coupled with the uncertainty surrounding the prospects of a fourth wave presents serious challenges to policy makers, as the economy battles to stave off further slowdowns in growth, employment and investment.
In order for the sector to remain attractive to investments it is crucial to maintain a positive differential between input cost inflation and selling price inflation, as business conditions on the whole have generally been tough. A positive differential enables manufacturers to pass cost increases onto the market, also enabling businesses to improve their margins.