Johannesburg - South Africa's producer inflation braked to 5.8% year-on-year (y/y) in December from 6.2% in November, Statistics SA data showed on Thursday.
It said on a monthly basis producer price inflation (PPI), which represents domestic output, also slowed to 0.3% from 0.7% in November.
A Reuters survey of eight economists saw PPI slowing to 5.9% y/y in December and to 0.4% on a month-on-month basis.
Exported commodities inflation was lower at 6% y/y in December from 6.2% the previous month, but imported commodities inflation quickened to 0.7% y/y from 0.5%.
Analysts welcomed the figure.
Brait economist Colen Garrow said the effect of the strong rand was being felt.
"I think it's the impact of the strong rand coming through, which is obviously good. But I think in 12 months' time we must start preparing ourselves for a rate hike," he said.
"But for now, the inflation numbers promote a case of rates moving sideways. There are some negatives creeping in like electricity prices and property taxes from July, and inflation readings are going to be magnified through the course of the year as the base effects arise from last year. So maybe a rate hike in Q4."
Consumer inflation slowed to 3.5% in December from 3.6% y/y in November, data showed last week.
The Reserve Bank left its key repo rate unchanged as expected last week - after 650 basis points of cuts since late 2008 - citing an improving economic outlook and rising inflation risks.
Carmen Altenkirch, economist at Nedbank, said the strong rand continued to contain commodity price increases.
"The rand remains a key risk in the outlook for producer inflation. With the carry trade likely to play a less dominant role this year, upward pressure on the rand is likely to be limited.
"This implies that higher global agricultural and commodity prices will feed through more quickly into domestic inflation, as there is no offsetting appreciation of the currency," she said.
She added that higher commodity prices, which will filter through to domestic inflation at both the producer and consumer level, are likely to be a key theme in 2011.
Stanlib economist Kevin Lings said the figure was a good one.
"The 5.8% PPI number tells a good story; it is the manageable increase. However, the biggest threat to PPI in the short to medium term is the increasing international price pressures feeding through to our market."
Johann Els, senior economist at Old Mutual Investment Group, said although there was some moderation in the PPI this does not suggest that the consumer price index will necessarily edge down.
"I'm of the view that CPI will continue to rise this year due to rising petrol and food inflation," he said.