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Cape Town – The headline Producer Price Index (PPI) increased slightly to 6.8% year-on-year in June in line with expectations, Statistics South Africa announced on Thursday.
The PPI measures changes in the prices of locally produced commodities.
From May 2016 to June 2016 the PPI for final manufactured goods increased by 0.6%, it said.
The PPI increased from May’s 6.5% inflation, but is below levels in April (7%) and March (7.1%).
The main contributors were food products, beverages and tobacco products (3.2 percentage points), metals, machinery, equipment and computing equipment (one percentage point) and transport equipment (0.8 of a percentage point), said Stats SA.
The main contributor to the monthly increase of 0.6% was coke, petroleum, rubber and plastic products (0.4 of a percentage point), it added.
This comes a week after Stats SA announced a modest drop in the country's consumer price inflation (CPI).
Stats SA data shows that the CPI dropped 0.1 of a percentage point in May to 6.1% from 6.2% in April.
On average, prices rose by 0.2% between April 2016 and May 2016.
The consensus forecast expected CPI to increase from 6.2% year-on-year in April to 6.4% in May.
The CPI has exceeded the South African Reserve Bank’s 3% to 6% CPI target since January, mainly due to steep drought-induced food price inflation.
"After softening for three consecutive months, producer inflation is once again increasing, supporting our view that food prices - comprising 25.20 % of the producer price basket - are likely to exert further upward pressure on producer prices towards the end of this year because of the drought," Nedbank's economic unit sommented on Thursday.
"The extent of the upward pressure will, though, be mitigated somewhat by the stronger rand and it is for this reason that we have in recent months marginally flattened our producer inflation profile."
The unit also pointed out that the SA Reserve Bank's MPC left rates unchanged last week, leading some in the market to believe that the Bank has reached the peak of its rate hiking cycle, despite both producer and consumer inflation forecast to increase in the coming months.
"We do not share the market's enthusiasm for an early peak in interest rates as the Sarb did indicate that last week's decision was more of a pause in a tightening cycle," stated Nedbank.
"Given the upcoming elections, the brittle global financial conditions and a potential sovereign rating downgrade later this year, the rand is likely to remain volatile, making monetary policy more cautious than it would otherwise have been given the weak state of the economy and limited credit growth."
According to Nedbank, much will depend on the rand as the year progresses. For now the bank anticipates one more hike of 25 basis points either late in the year or early in 2017.
