The producer price index (PPI) rose an annual 5,1%, slightly below market expectations of 5,2%, after increasing 4,5% in November, Statistics SA said. This was the fastest increase in prices since March 2003.

Higher producer prices feed through to consumers within months, so the increase at the factory gate points to a further rise in the CPIX measure (consumer inflation less interest costs on mortgages) used by the Reserve Bank for inflation targeting.

However, analysts said that despite the blow to rate-cut hopes ahead of next week’s meeting of the Bank’s monetary policy committee, CPIX was unlikely to breach the upper end of the Bank’s 3%-6% target range this year or next.

As with the latest CPIX data, which Statistics SA said yesterday had accelerated to an annual 4% last month, food prices were the main culprit in the rise in the PPI.

The prices of agricultural products rose an annual 9,9% and food 13,2%.

This follows a warning from Bank governor Tito Mboweni in October last year. He predicted that low food-price inflation, which had helped to keep overall inflation down, was coming to an end. Food contributes about 26% to the basket of goods used to measure CPIX.

Analysts said that with oil prices on the boil as Iran’s nuclear stand-off with the West played itself out, the Bank would continue to keep a close watch on energy and food costs before making any decision on interest rates.

Standard Bank economist Shireen Darmalingam said that while second-round effects on inflation from higher oil prices had not yet materialised “we cannot shy away from the fact that they may in the months ahead, particularly as geopolitical tension in the Middle East may cause further price elevation as the year progresses”.