Wholesale prices unchanged in August as drop in energy prices offsets costlier food

Companies paid the same amount for wholesale goods last month as a drop in energy prices offset higher food costs.

Excluding the volatile food and energy categories, core wholesale prices edged up 0.1 percent, the smallest increase in three months. The figures indicate that inflation pressures are easing.

The leveling off is good for cash-strapped consumers, Daco said, because it puts less pressure on businesses to raise their prices. That could increase consumers’ purchasing power.

The Producer Price Index, which measures price changes before they reach the consumer, was unchanged in August, the Labor Department said Wednesday, after a 0.2 percent rise in July.

In the past 12 months, the index has increased 6.5 percent, mostly due to higher gas and food costs. That’s the smallest 12-month rise since March, though much bigger than the annual changes late last year.

Core prices rose 2.5 percent in the past 12 months, the same pace as July.

“It does seem as though wholesale prices have plateaued,” said Gregory Daco, U.S. economist at IHS Global Insight. They are likely to remain at roughly the same level or inch down in future months, he said.

Food prices rose 1.1 percent in August, the largest increase since February. Egg prices jumped nearly 11 percent, the most since April, while processed chicken prices increased 3.7 percent, the most in five years. That likely reflects the higher cost of corn and other grains that are used for animal feed.

Processed fruits and vegetables rose 2 percent, the most since February 1990.

The core index was pushed up by a jump in tire prices, which rose 1.4 percent, the most in four months.

Wholesale gasoline prices, meanwhile, fell 1 percent in August, and home heating oil dropped 1.2 percent.

Sharp increases in the prices of oil, food and other commodities pushed up most measures of inflation earlier this year. But now that many commodities are becoming less expensive, inflation pressures are fading.

That’s taken some of the pressure off the Federal Reserve to keep inflation in check by raising interest rates. Instead, the central bank can keep the short-term rate it controls at nearly zero, in an effort to support economic growth.

Oil prices have fallen in recent months as fears have grown that the economy might shrink. That’s contributed to lower gas costs. Gas prices averaged $3.63 a gallon nationwide Wednesday, according to AAA. That’s down a peak of nearly $4 in May, though still almost a dollar more expensive than a year ago.

Food prices, however, may keep rising. The U.S. Department of Agriculture said Monday that an unusually hot summer damaged much of the nation’s corn crop. That could drive up food prices broadly because corn is used in everything from animal feed to cereal to soft drinks.

Corn fell about 23 cents to $7.23 a bushel Tuesday. That’s down from its peak of $7.99 in June, but nearly twice the price paid in the summer of 2010.

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More technical work needed to define SA’s shale gas framework

The exploitation of shale gas in South Africa could be a "game changer" for the gas sector, a senior Department of Energy (DoE) official said on Tuesday. But he also appealed for patience to allow a Department of Mineral Resources (DMR) task team to finalise its investigation into the issue of hydraulic fracturing, or fracking, and its appropriateness to the South African setting.

A moratorium has been imposed on the issuance of exploration licences for unconventional gas in the arid Karoo region and in mid-August Mineral Resources Minister Susan Shabangu extended the moratorium by a further six months to allow for further policy and technical reviews.

Speaking at the fourth natural gas conference in Johannesburg, deputy director-general responsible for hydrocarbons and energy planning Tseliso Maqubela said the DoE was still to finalise the advice it would be offering the DMR on the possible regulatory framework for shale gas exploration and development. This involved researching international best practice in this regard, as process that was being conducted at an "accelerated pace".

But the issues were "complex" and the DMR had, thus, also established a technical working group, which had also not yet completed its review of the technical threats and opportunities associated with fracking.

South Africa was not alone in conducting investigations into the industry and even in the US, where there is extensive exploitation of unconventional gas reserves, new questions were also being asked of the industry.

Late last month, the Securities and Exchange Commission (SEC), which is better know for its probes into issues such as the US mortgage crisis, started requesting detailed information about fracking processes and the chemicals deployed. The Wall Street Journal reported that the SEC would seek to ensure that investors were being told about the potential risks a company involved in fracking might face. Separately, the US’s Environmental Protection Agency was also collecting information about the possible environmental risks associated with such operations.

"So a lot of work is needed to develop South Africa's approach to this complex subject and, therefore, I can only appeal for patience," Maqubela said, adding that the framework would seek to balance the need for environmental responsibility and sustainability with the need for energy security.

But reading from an address prepared for delivery by Energy Minister Dipuo Peters at the event hosted by the South African Pipeline Gas Association, Maqubela indicated that the DoE was eager for exploration to proceed in order to confirm South Africa’s unconventional gas resource base.

The US Department of Energy had estimated previously that South Africa’s shale gas resource could be as large as 485-trillion cubic feet, or the fifth largest in the world. These estimates were sufficient to attract interest form large energy companies, including Shell and Sasol, but are remain far from certain.

Nevertheless, should commercially available reserves be unearthed through exploration, it could go some way to bolstering the role of gas within the domestic energy mix – gas currently accounts for less than 3% of that mix.

There was, however, significant opposition to shale gas exploration in the Karoo, which had found practical expression through the formation of the Treasure the Karoo Action Group (TKAG). The TKAG argues that the current moratorium should be sustained until it is conclusively proved that fracking is the only and best option to sustainably supply South Africa’s energy needs and to create employment.

“We note the concerns related to shale gas and we trust that the interdepartmental task team . . . will provide us with a way forward,” Maqubela said.

National Energy Regulator of South Africa (Nersa) regulatory member Ethel Teljeur, who is responsible for piped gas regulation, said the current dearth of gas resources in South Africa remained the biggest constraint to investment and to growing the role of gas in the domestic energy mix.

She said that Nersa’s brief included providing support for the orderly development of the gas industry through awarding licences and setting tariffs. It had no direct role in the development of the upstream sectors, which was the jurisdiction of the Petroleum Agency South Africa.

Nevertheless, Nersa was monitoring developments surrounding shale gas, as it could provide an important new source of indigenous supply and was possibly the “future of gas in South Africa”.

The recently published Integrated Resource Plan for electricity, which covers the period 2010 to 2030, but which will be updated several times during that period, envisaged gas comprising about 15% of the energy mix by 2030. Some 7 330 MW of this capacity could arise in the form of open-cycle gas turbines and 2 370 MW in the form of combined cycled gas turbines (CCGT).

It was also envisaged that the proposed the Avon and Dedisa peaking power projects, which could be developed by the Suez-Inkanyezi consortium, led by GDF Suez, in KwaZulu-Natal and the Eastern Cape might be eventually converted to gas from diesel should the primary energy become available.

Eskom delivery unit executive Kannan Lakmeeharan noted that decisions would need to be made during the current year on the sources of gas for the CCGT projects. This was not owing to long construction lead times for the plant themselves, but because they could hinge on the development of liquefied natural gas infrastructure, which would time to build.

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