ECONOMISTS expect a drop in food prices in the next four months as a result of the deflation in factory gate prices in June.
The producer price index (PPI) fell by a record -4,1percent year-on-year last month, from 3,0percent in May, Stats SA said yesterday.
The PPI number came a day after targeted CPI consumer inflation braked to 6,9percent year-on-year in June from 8,0percent in June, moving closer to within the 3 to 6percent target band breached in April 2007.
Analysts said the data, with the slower-than-expected consumer inflation and easing growth in credit demand, increased prospects of more interest rate cuts this year.
Investment Solutions economist Chris Hart said the figure was lower than expected due to the "strong rand and the oil prices that are significantly low compared to the same period last year".
Hart said the Reserve Bank might cut interest rates by 50 basis points at its September meeting.
Exports decreased by -9,7percent in June this year compared with the same month last year, while imports fell by -17,9percent month-on-month.
Efficient Group economist Dawie Roodt said the PPI performance would not push the consumer price index to low numbers.
"We shouldn't be too excited because the PPI is quite volatile and depends on commodity prices while the CPI depends on sticky service prices," Roodt said.
Mike Schussler of Economists.co.za said the reality was that goods prices were falling but services remained high.
He said we should expect "food prices to decrease in about 4 months' time because PPI is always ahead of CPI".
Cosatu spokesperson Patrick Craven said current food prices in South Africa were "not in line with the international trends".
"We want to see food prices coming down to levels where they are supposed to be, so we even support the investigation by the Competition Commission."
Craven said the PPI figures reinforce the trade federation's call for further interest rate cuts. "Our concern is not only with interest rates but with the general high levels of unemployment."
The Reserve Bank's monetary policy committee is due to meet again on August 12 and on September 21, when it is expected to cut rates.