Electricity jolt runs up PPI

The high electricity price increases have contributed to above-expected producer inflation in June.

Producer inflation, as measured by the producer price index, increased to 7.4% year-on-year in June from 6.9% year-on-year in May.

Carmen Altenkirch, economist at Nedbank, said that base effects and the return of some pricing power to producers would push prices at the manufacturing level up modestly over the months ahead.

Freddie Mitchell, an Efficient Group economist, said the latest PPI figure meant that a close eye would have to be kept on CPI.

"We'll have to keep a close eye on this because it tends to give an indication of what we can expect to see in the consumer price index. Let's hope it doesn't get out of hand and we don't see a rate increase in this economic climate that we're in," he said.

The MPC would face a dilemma over the next months regarding how to react to rising inflation in an environment where growth was weak and fragile, according to Altenkirch.

"We still believe that hiking rates too soon would do more harm than good," Altenkirch said.

Exports rose 5.3% in June from 4.9% in May, while imports were at 10.4% year-on-year from 8.9% year-on-year.

Stats SA said the higher annual PPI rate in June was driven by increases in the annual rate of change in the producer index for electricity, from 26.1% in May to 27.6% in June.

Mining and quarrying's annual rate increased from 4.1% in May to 7.1% in June, while food manufacturing's annual rate rose from 4.8% in May to 5.9% in June.

"Sustained high resources prices and fuel prices in particular should continue to push producer prices higher over the foreseeable future," Johan Rossouw, group economist at Vunani Securities, said.