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Johannesburg - The latest producer price index (PPI) released on Thursday clearly reflected the weak domestic fundamentals underpinning the South African economy, Seifsa said.
Earlier on Thursday, Statistics SA said the PPI for final manufactured goods from July 2014 to August 2014 remained unchanged.
The annual percentage change in the PPI for final manufactured goods was 7.2% in August 2014.
This compared to eight percent in July 2014.
Steel and Engineering Industries Federation of Southern Africa (Seifsa) economist Tafadzwa Chibanguza said theoretically, among other variables, strong economic growth caused inflation.
"At a macroeconomic level, if aggregate demand is greater than aggregate supply, the result is upward pressure on inflation," he said.
"The reverse is true that if you cannot sell a product at a specific price, then you have to reduce the price of the product."
This fact was evident in the PPI figures, given the lacklustre growth in the manufacturing sector and the broader South African economy.
Compounding this disinflationary trend in August would have been a number of additional factors.
Firstly, the exchange rate held a relatively stable level in August, averaging $1/R10.66 for the month, thus easing the inflationary pass through.
Secondly, recovering production levels following the July strike in the metals and engineering sector meant companies were operating still far from full capacity.
The last factor was the softer brent crude oil price, which decreased by around four percent in dollar terms in August.
"All these factors would have contributed to the easing in production inflation,” said Chibanguza.
While Seifsa welcomed the disinflationary pattern in producer inflation, and its knock-on effects, it was the underlying pattern that was a cause of concern.
Currency fluctuation, accounting for just under half of domestic production price movement, posed the greatest risk to producer inflation.
Stats SA said the main contributors to the annual rate of 7.2% were food products, beverages and tobacco products.
The annual percentage change in the PPI for electricity and water was 8.6% in August 2014 - compared with 7.8% in July 2014.
In mining, the annual percentage change in the PPI was 3.6%, compared with 7.8% in July this year.
The annual percentage change in the PPI for agriculture, forestry and fishing was 4.2% in August 2014 compared to the previous month.
Stats SA defines PPI as a measure of the change in the price of goods, either as they leave their place of production or as they enter production.
