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Johannesburg - Statistics South Africa said on Thursday that producer price inflation (PPI), which represents domestic output, quickened less than expected to 6.9% year-on-year (y/y) in May from 6.6% in April.
The market was expecting PPI to rise to 7.05% y/y and was seen breaking to 0.6% on a monthly basis.
Elize Kruger, economist at Kadd Capital, said the figure was in line with her expectations. "I think it just says the general pricing pressures from the oil side sort of declined a bit during the month ... which helped to contain the monthly growth rate and bring the pace of acceleration slightly more moderate," she said.
“I wouldn’t make too much of it, but I would say that in the next month or so we could see it coming down a bit from current levels, given that we will start to see a bit of the fuel price decline more evident in the PPI numbers. I think that has been one of the drivers of the past few months," she said.
Consumer price inflation (CPI) quickened more than expected to 4.6% y/y in May from 4.2% in April, boosting chances the Reserve Bank might start lifting interest rates before the end of the year rather than early in 2012.
The PPI basket is however dominated by commodities, weakening the link with CPI.
The central bank raised its inflation forecast in May and said CPI inflation was likely to pierce its 3% to 6% target band briefly, peaking at 6.3% in the first quarter of 2012. It has left its repo rate unchanged at 5.5% so far this year, after reducing it by 650 basis points between December 2008 and December 2010.