PPI rose at fastest pace in May

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.

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

A Reuters poll last week showed PPI was expected to quicken to 7,1percent year-on-year and slow to 0,5percent month-on-month.

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

Citadel economist Salomi Odendaal said: "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.

"I think the PPI should reach its peak within the next few months and then flatten out."

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

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

Reserve Bank governor Gill Marcus has signalled rates will stay on hold for "some time" although consumer inflation may now ease more than the bank's monetary policy committee had expected.

"Today's PPI figure does not alter our view that rates will remain unchanged until the third quarter of 2011," said Carmen Altenkirch, an economist at Nedbank.

"However, a negative growth surprise, combined with the current favourable inflation outlook, could still prompt the Reserve Bank to loosen monetary policy further." - Reuters

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