SA's producer inflation quickens, but seen stabilising

South Africa’s producer price inflation quickened year-on-year in May, largely driven by higher commodity prices, though analysts said production costs were likely to steady in coming months.

Statistics South Africa said prices at the factory gate rose 6,8% year-on-year in May from 5,5% in April, but the month-on-month rate of increase was slower at 0,2% compared with 1,5% previously.

A Reuters poll last week showed the producer price index (PPI) was expected to quicken to 7,1% year-on-year and slow to 0,5% month-on-month.

Exported commodities inflation stood at 4,8% year-on-year in May compared with 0,2% the month before, while imported commodities inflation accelerated to 6,5% year-on-year from 5% previously.

“The fairly sharp rise in the PPI since the beginning of the year is mainly because of commodity prices that were quite high a year ago, but that effect should fall out of the index during the rest of the year,” said Citadel economist Salomi Odendaal.

“I think the PPI should actually reach its peak within the next few months and then flatten out. There shouldn’t be a huge pass-on effect to the CPI [consumer inflation] because of the lack of price pressures at present.”

Consumer inflation slowed to a four-year low of 4,6% in May, Stats SA said on Wednesday, confirming consumer pressures are easing and keeping the door open for another possible cut in interest rates.

The Reserve Bank reduced its repo rate by 550 basis points to 6,5% between December 2008 and March this year, initially to pull the economy out of its first recession in 17 years and then as inflation continued to cool.—Reuters