South Africa's headline producer price inflation (PPI) eased more than expected to 8.1% in June 2014 from 8.7% y/y the month before, data released by Statistics South Africa showed. The monthly headline producer price inflation, on the other hand, slightly quickened to 0.3% in June from 0.2% in May. Economists polled by Reuters had projected the PPI at 8.4% y/y and at 0.5% m/m.

The main contributor to the annual headline producer inflation in June was the group of foods, beverages and tobacco products with a 7.6% y/y growth and a 2.8pps contribution to the producer price index. Next, the prices of coke, petroleum, chemical, rubber and plastic products grew 9.3% y/y and contributed 1.6pps to the PPI, followed by metals, machinery, equipment and computing equipment with a 9.5% y/y price growth and a 1.4pps contribution, and transport equipment with an 8% y/y rise and a 0.8pps contribution.

Producer prices are a key preliminary indicator for the dynamics in consumer price inflation, so we can expect South Africa’s headline inflation rate to ease slightly after staying at a five-year high of 6.6% in June, well above the central bank’s 3%-6% target band.

As of January 2013, Statistics South Africa releases five separate industry-specific PPIs, with final manufactured goods representing the headline number. The other four PPIs cover agriculture, forestry and fishing; mining and quarrying; electricity and water; and intermediate manufactured goods (see the table below).