PPI rises to 6.7% in Feb

Statistics South Africa said on Thursday that PPI, which is the prices of goods leaving factories and mines, rose to 6.7% from 5.5% in January.

The higher annual rate could be explained by increases in the annual rate of change in the PPI for mining and quarrying, basic metals, products of petroleum and coal, agriculture, manufacturing, food, beverages and electrical machinery and apparatus.

"Producer inflation will rise further this year, as the impact of higher commodity prices filter through to the domestic economy and firmer demand, both locally and globally, puts some upwards pressure on the cost of manufactured goods," said Nedbank economists.

"Producer and consumer inflation will continue to rise during 2011, as the impact of higher international commodity prices filters through to the domestic economy and producers regain some pricing power as demand improves.

"The Reserve Bank may opt to react pre-emptively, hiking rates in the second half of the year. However, we believe that this would do little to contain inflation and risks curbing the economic recovery. As a result, the Reserve Bank is only forecast to raise interest rates in the first quarter of 2012," said Nedbank.

Last week, the central bank decided to keep rates unchanged at 5.5%, the lowest in 30-years. Since December 2008, the repo rate has been cut by 650 basis points.