SA producer prices up 6.4% in May

South Africa's Producer Price Index data for May has shown a marginal increase of 6.4 per cent, remaining unchanged from the previous month. The annual PPI for mining in May saw a decrease of 0.5 per cent from April, with the main contributing factor being gold and metal ores. Investec Chief Economist, Annabel Bishop, joined CNBC Africa to discuss the implications of these figures on the economy. According to Bishop, the slight decrease in petrol prices, driven by a 54 centimeter drop, was the biggest driver of the outcome. This, coupled with the downward trend in oil prices and rand weakness, has resulted in a less severe increase in PPI. Looking ahead, Bishop predicts a potential cut in petrol prices in July, which could further reduce PPI inflation. Other factors driving the increase include a 1.5 per cent contribution from food prices and various components such as paper, textiles, metals, machinery, and transport equipment. State-administered prices also showed an inflation rate of 8.2 per cent, putting upward pressure on producer price inflation. While the current focus is on manufactured inflation figures, Bishop highlighted the significance of food price inflation in the overall economy. She noted a gradual upward tick in food prices, with meat prices being a key component. Despite some support from good harvests and imports in the agricultural sector, Bishop expects food price inflation to continue its upward trend. The conversation then shifted to the Reserve Bank's potential interest rate cut. With consumer price inflation standing at 4.5 per cent, lower than the PPI inflation rate, economists anticipate a rate cut in the near future. However, markets seem less certain, with only a 25 basis point cut priced in for the future. The departure of Deputy Governor Daniel Mminele from the Monetary Policy Committee raised questions about the future composition of the MPC. Bishop expressed regret at Mminele's decision not to pursue a third term, highlighting his financial market focus. While his absence may be felt, Bishop believes the MPC will continue to consist of capable and well-educated members. She noted the importance of having a mix of private sector-focused individuals and research-oriented members on the committee. Overall, the marginal increase in producer prices, coupled with expectations of a rate cut and changes in the MPC composition, signal potential shifts in South Africa's economic landscape.