PPI REPORT

24 February 2011

Group 2
Reynard Becker Nicol Precious 072 778 3924 200504772

071 098 5346 083 750 0332 082 858 9756 200603414

Monique Visser

PPI REPORT GROUP 2

SAs producer price index for January 2011 as presented by STATS SA, 24 February showed PPI at 5.5% y/y with 0.3 percentage points lower than December 2010. PPI in a general overview of market expectation was that PPI will see a decrease y/y. Leading economists, according to Businesslive, forecasted PPI ranging from 5.0% to 5.9%.FNB forecasted as low as 4.2%. The first half of 2010 saw the PPI index accelerate into a steady upward trend with y/y changes reaching a high of 9.4%. This could dampen the effect of steady index increases in the last 4 months. Standard Bank analysts Adriaan du Toit stated that the strong rand during 2010 has had a disinflationary effect on PPI along with slower increasing in commodity import prices. However the current year saw the rand decreasing and international commodity prices increase, which could soon stop the disinflationary effect. Resent strong increases in oil prices (of over the $100 mark), which could see PPI accelerating to the middle of the year. The current diesel prices are a contributing factor to the increase in index. Mining and quarryings decrease of 4.9% contribute to PPI slowing down. Other factors that helped to counteract the decrease were the increase paper products, chemicals, petroleum, basic metals etc. Agricultural food prices increased during the second half of 2010 and current international food prices increased. Non-favorable weather conditions contributed to the effect. The remaining rand strength and the slow startup in manufacturing sector are main contributors of the PPI decreasing. It is expected that the interest rate will remain relatively constant in the

coming months, but we could see inflationary pressure as international demand, especially food prices, start picking up speed.