South Africa Producer-Price Inflation Rose to 7.4%, Statistics Office Says

The price of goods leaving South African factories and mines rose at a faster pace in June than the previous month, reflecting the increased cost of food, fuel and electricity.

Producer prices increased 7.4 percent from the year earlier after gaining 6.9 percent in May, Pretoria-based Statistics South Africa said on its website today. The median estimate of 16 economists surveyed by Bloomberg was 6.9 percent. Prices rose 4.4 percent in the month.

Higher factory-gate prices may feed through to consumer inflation, placing pressure on the central bank to raise interest rates from a 30-year low. The consumer inflation rate rose to a 15-month high of 5 percent last month from 4.6 percent in May. The central bank’s inflation target range is 3 percent to 6 percent.

The central bank “will face a difficult dilemma over the coming months: how to react to rising inflation in an environment where growth is both weak and fragile,” Carmen Altenkirch, an economist at Nedbank Group Ltd. in Johannesburg, said in e-mailed comments. “We still believe that hiking rates too soon would do more harm than good.”

The rand fell to 6.6867 per dollar at 12:29 p.m. in Johannesburg from 6.650 before the release of the data and 6.6703 late yesterday. The 13.5 percent bond due September 2015 strengthened less than 0.1 percent to 121.45 rand, reducing the yield by one basis point, or 0.01 percentage point, to 7.352 percent.

Volatility

“Year-on-year producer price inflation has displayed some volatility in recent months, partly a result of commodity price fluctuations,” central bank Governor Gill Marcus said on July 21, when the bank left the benchmark interest rate unchanged at 5.5 percent. “Food and oil price developments remain the major risks to the inflation outlook.”

The price of electricity leaped 27.6 percent from a year ago, while an index of food-manufacturing prices gained 5.9 percent, the statistics agency said. An index of mining and quarrying prices advanced 7.1 percent.

“Commodity prices have corrected slightly off earlier highs, which should help to contain producer inflation in the months ahead,” Altenkirch said. “However, base effects and the return of some pricing power to producers should push prices at the manufacturing level up modestly over the months ahead.”

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editors responsible for this story: Philip Sanders at psanders@bloomberg.net.