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Johannesburg - Prices at South Africa's farms, factories and mines rose by 6.4% year-on-year (y/y) in October from 6.8% in September, official data showed on Thursday.
Statistics South Africa said on a monthly basis the producer price index (PPI), which represents domestic output, fell by 0.4% compared with -4.1% in September.
Exported commodities inflation slowed to 6.6% y/y in October from 7.6% the previous month, while imported commodities inflation was at 1.3% y/y from 0.7%.
A Reuters poll last week showed PPI was expected to be steady at 6.8% and was seen at a negative 0.1% on a month-on-month basis.
Nedbank Group [JSE:NED] economist Carmen Altenkirch said the slowing was due to a further seasonal decline in electricity prices.
"International soft and industrial commodity prices have risen sharply in recent months on the back of strong investment demand. However, the impact domestically has been muted so far due to the strength of the rand," she said.
She said following the second round of quantitative easing in the US and continued growth in key commodity-consuming countries like China, there was a risk of further price increases next year which could begin to filter through into higher domestic prices.
"Weak demand, both locally and globally, low input costs as well as the strong rand will help to contain price increases of manufactured goods," she said.
KADD Capital economist Elize Kruger said the PPI was not a surprise.
"This indicates that pricing pressures are still at moderate level. I expect the PPI to trend even lower towards the end of this year. My projection is 5.2% by the end," she said.
Chris Hart, economist at Investment Solutions, said the figure topped market expectations.
"The latest data indicates that producer inflation is on a downward cycle, which is highly dependent on the strength of the currency. We expect the currency to improve from here to reach roughly R6.50/$ by year-end and to continue to strengthen into 2011.
"This means cost pressures reflected in the PPI would dissipate, reducing the risk to consumer inflation and improve flexibility in monetary policy," he said.
The major contributors to the headline decrease were forestry (from 25.9% to 23.1%), mining and quarrying (18.3% to 14.0%) and basic metals (9.3% to 7.8%).
Increases were recorded for petroleum products and coal (-1.2% to 4.1%), chemicals (0.0% to +1.5%) and electricity (17.2% to 20.6%).
