STATS SA

WHAT’S IN THE FRESH PPI AND CPI PRODUCT BASKET?

Patrick Kelly (Chief Director for Price Statistics at Stats SA)

Kevin Parry (Deputy Director: Media at Stats SA)

A fresh product basket reflecting the most recent profile of goods made in South Africa has been used to calculate the most recent producer inflation data released by Stats SA.

A basic feature of economic activity is the continual exchange of goods and services between businesses, retailers and consumers. Millions of goods and services are bought and sold every day at a particular price. Prices change over time – some slowly, others more quickly. The average change in prices is what we call inflation.

Measuring inflation in the economy

As the official statistics agency, one of Stats SA’s core tasks is to publish inflation data on a monthly basis. It does this by collecting thousands of prices for hundreds of products across the country. These data are then summarised into a various price indices. The producer price index (PPI) and the consumer price index (CPI) are the two over-arching measures of inflation.

The PPI and CPI both track changes in prices over time but for different points in the product value chain. The PPI is a measure of transaction prices between businesses, such as farms, mines and manufacturers. If a sheep farmer sells wool to a coat manufacturer, the price the farmer charges is incorporated into the PPI. Likewise, the PPI includes the price of a wool coat that the manufacturer sells to a retailer.

In contrast, the CPI measures the prices of goods and services that households buy for day-to-day living. In our hypothetical scenario this would include the price that a consumer might pay to buy the coat from the retailer.

Inflation data are used in economic analysis, monetary policy, salary negotiations and in the development of contracts.

In with the new; out with the old

Stats SA adheres to international standards in the production of its statistics. It reworks its PPI basket of goods on an annual basis to ensure that the data remain relevant. The basket is a representative set of goods that are produced by South African mines, farms, factories, power plants and water utilities. The PPI for manufacturing is divided between products that require further processing (intermediate manufactured goods) and those that can be used as is (final manufactured goods).

In February, a new basket was published containing twelve new products (for final manufacturing). This indicates that the economy is producing proportionally more of these products to warrant their inclusion. Notable examples of new entrants include solar panels, antidepressants, ready-made meals, sausages, plastic parts for cars, and offal.

Fifteen products were removed from the basket, including powdered soups, loose car-seat covers, geysers and plastic stationery.

A large manufacturing survey conducted by Stats SA, together with data from other sources, informed the development of the new basket. In total, there are 223 products in the new basket (for both intermediate and final manufacturing).

Products that drive manufacturing inflation

Each of these products carry a particular weight, which represents their relative importance in the index. In final manufacturing, food and beverages is the largest category, accounting for 29% of manufacturing production. The second largest category, at 24%, includes petroleum, chemicals, rubber and plastic products.

Beer finds itself as the third largest item in the basket on a product level, carrying a weight of 3,5%. It is only surpassed by petrol (4,8%) and diesel (4,7%) and is followed by soft drinks (3,1%), catalytic converters (2,6%), petro-chemicals & feedstocks (2,2%), and cigarettes (2,2%).

Consumer habits have shifted too

Whereas adjustments to the PPI basket reflect changes on the

production side of the economy, the CPI basket is also periodically updated to reflect changes in consumer behaviour.

The latest CPI basket was updated in 2022 and now consists of 415 goods and services. Fourteen new items were introduced to the basket, including gin, cappuccino sachets, fruit juice and fabric softener. Only two items were removed: DVD players and satellite dishes.

Stats SA also changed the PPI index reference period to December 2023. The index reference period is where all indices are set to 100.

In order to remove the effect of historical inflation from the current calculations, the index refence is periodically adjusted, which shifts all the actual index values but retains the previously published rates of change.

As Stats SA looks to the future, it will not only continue to publish price data for a wide range of products and services, but it will also ensure that its statistics remain relevant.