There are two main components to measuring inflation. CPI which is the Consumer Price Index measures inflation by a basket of consumer goods. The second measure is PPI or the Producer Price Index which measures 'factory gate' inflation or how much more expensive it is to make things. Like consumer inflation is coming down so is producer inflation, and the latest stats show a whopping 4.1% decrease. This means it is now getting cheaper to make goods but the question remains will these savings be passed on to the consumer by the retailers.
- PPI leads CPI
- Food prices still high
- Retailers might profit take
It has been a hard year for everybody and with the high inflation environment we experienced last year the knock on effects are only now filtering through into the shops. The drastic decline in PPI indicates that goods should get cheaper in the shops in the next few months as manufacturing costs rise less fast. However retailers are needing to make up lost revenues due to the downturn and may be tempted to profit take by not passing on these slower rising increases to the consumer. The competition commission is investigating the large supermarkets so they should pass the savings to consumers but smaller retailers may not.
Interest rates have been used to control inflation and the cuts that were made in the first half of this year are now starting to manifest in the economy. Inflation appears to be coming under control and is a fitting leaving present for The Guv Tito Mboweni. His successor may take a different view regarding inflation targeting but as long as real prices don't increase beyond what they should, then the economy will do better. The important thing is to plan your budget and don't expect prices to come down. They will rise, just hopefully not as quickly as they were. So plan your budget and stick to it, we are not out of the recession yet.