Pretoria - The Producer Price Index rose to 6.8 percent in May, reported Statistics South Africa (Stats SA).
The below market expectation (which was expecting a 7.1 percent rise) follows on April's 5.5 percent. PPI is the price of goods leaving factories and mines.
The higher annual rate recorded in May could be attributed to the annual rate of change in the Producer Price Indices for forestry; chemicals and chemical products; basic metals; metal products; electricity; other manufactures; mining and quarrying and products of petroleum and coal.
"Higher commodity prices, which contribute roughly 20 percent to the PPI basket, are the main driver of producer inflation. Slower global growth and weaker demand from China should contain commodity price gains during the remainder of the year," said Nedbank economist Carmen Altenkirch.
She said price increases for manufactured goods which make up about 60 percent of the basket will remain subdued constrained by weak infrastructure and capital spending locally and abroad as still uncertain economic prospects makes companies reluctant to invest in new capacity.
"The PPI figure does not alter our view that rates will remain unchanged until the third quarter of 2011. However, a negative growth surprise combined with the current favarouble inflation outlook could still prompt the Reserve Bank to loosen monetary policy further," she said.
At its meeting last month, the bank's Monetary Policy Committee (MPC) decided to keep the repo rate steady at 6.5 percent.
Standard Bank had been expecting PPI to come in at 7.5 percent year-on-year.
"It leaves little doubt that producer prices are plastered on a firm upward trajectory. Factors supporting a rising producer price profile could emanate from rising commodity prices coupled with the low base levels of last year.
"We have already seen world commodity prices rocket in recent months, on the back of uncertainty in the global playing fields. However, as volatility in global markets oscillates around points of safety, we're likely to see (large) variability in commodity prices, and, by implication, producer prices," said economist Shireen Darmalingam.
