The rise in producer price inflation (PPI) is “concerning”, given that it was driven mainly by mining – a key supplier of metals and engineering (M&E) industry raw material, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) said on June 24.

The federation referred to data released by Statistics South Africa, which showed that the PPI of final manufactured goods rose from a low level of 3.5% in January to 7.4% in May.

One of the biggest contributors to this increase was the mining sector, whose producer inflation shot up from 10.8% in April to 21.7% in May.

Considering that mining producer inflation had averaged 16% since January, Seifsa said it was putting pressure on the financial position of M&E companies with regard to the overall cost of production.

Seifsa chief economist Chifipa Mhango on Thursday commented that other contributing factors to PPI were rising transport and energy costs.

“As producer prices increase, this has implications towards the overall picture of consumer prices. Manufacturers take in costs of production such as electricity costs, transport costs, as well as mining products into their price-setting equation,” he said.

He explained that producers were passing on these costs to consumers, which was evident in consumer price inflation numbers, with inflation having increased from 4.4% in April to 5.2% in May.

Prices for intermediate manufactured goods increased from a low base of 8.6% in January to 15.2% in May.

“Although this is positive news for the producers of intermediate goods in the M&E sector in terms of potential revenue, in a depressed market, this might negatively impact key consumer market affordability, resulting in lower sales volumes,” Mhango said.

He further noted that, globally, producer price inflation would continue to pick up amid increased global economic activity as Covid-19 vaccines are rolled out in advanced economies.

The latest data shows that PPI in the eurozone is at 7.6%, while it is 9% and 6.6% in China and the US, respectively.

“This could be a concern in terms of the global inflation outlook,” Mhango warned.