PPI rises to 7.4% in June

"This rate is 0.5 of a percentage point higher than the corresponding annual rate of 6.9% in May 2011," said Stats SA.

PPI, which is the price of goods leaving factories as well as mines, rose higher than market expectation. It was expected to rise to 7%.

The higher annual PPI could be attributable to increases in the annual rate of change in the Producer Price Index for electricity, mining and quarrying, food and manufacturing, agriculture and basic metals.

Nedbank economists said commodity prices have corrected slightly off earlier highs which should contain producer inflation in the coming months.

"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.

"The [Reserve Bank's] Monetary Policy Committee 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," said Nedbank.