PERSISTENT DIP IN PPI ADDS FURTHER STRAIN TO EMBATTLED MANUFACTURERS

CEFA-Ft-Economics-Strain

Johannesburg, 28 May 2020 – The persistent dip in the intermediate producer price
index (PPI) is adding further strain to embattled manufacturers operating in the metals
and engineering (M&E) sector, the Steel and Engineering Industries Federation of
Southern Africa (SEIFSA) said today.

Speaking after the release of PPI data by Statistics South Africa (Stats SA) today, SEIFSA
Economist Marique Kruger said given the prevailing tough conditions, the added pressure
in the form of decreasing selling prices is disconcerting to companies which are unable
to pass on increased cost pressure from factors affecting supply on to the market.

The latest PPI data indicate that the annual percentage change in the PPI for intermediate
manufactured goods, which is measured in factory-gate prices, slowed from 1.8 percent
in February 2020 to 0.0 percent in March 2020. The slowdown is consistent with the
annual change in the PPI for final manufactured goods, which also slowed from 4.5
percent in February 2020 to 3.3 percent in March 2020.

“Businesses in the broader manufacturing sector in general and the M&E cluster of
industries in particular are operating under increasingly difficult conditions. The
decreasing PPI prevents companies from improving on tight margins,” Ms Kruger said.

According to Ms Kruger, the situation is further exacerbated by low domestic demand,
high administered charges and raw materials prices and volatility in input costs
underpinned by a volatile exchange rate. Moreover, the national lockdown as a result of
the global coronavirus pandemic has thrown a spanner in the works, with a huge distortion
of supply chains further exacerbating the situation for businesses.

Encouragingly, manufacturing companies which have been operating with low employee
numbers and scarce raw materials stock are looking forward to Alert Level 3 which kicks
in on Monday, 1 June, when they will be able to operate with up to 100% employee
numbers and robustly produce or sell their goods.

Although it is crucial for policy makers to increase focus on supply-side interventions, Ms
Kruger says, SEFSA recommends even greater attention on the need to boost short-
term, demand-side measures in order to provide an impetus for distressed businesses.
 
“The initiative will help reboot industrial activity in the local economy as increased demand
will invariably boost both production and selling prices for intermediate and final goods.
There is also a need to implement interventions aimed at directly reducing struggling
manufacturers’ input costs in the short term in order to alleviate cost pressures, with
extended benefits for businesses,” Ms Kruger concluded.
 
Issued by:
Ollie Madlala
Communications Consultant
Tel: (011) 298 9411 / 082 602 1725
Email: ollie@seifsa.co.za
Web: www.seifsa.co.za