Inflation at the production level may not be getting any worse, but it’s certainly not getting any better. That is the message from December’s Producer Price Index (PPI) just released by Statistics South Africa.

If anything, according to some economists, there are some grounds for concern. Further weakening of the rand will weigh heavily on the import component of goods before they enter the retail chain where they are felt by the average household.

The annual rate of increase of the PPI for December remained unchanged at 5.2%, the third successive month, which encourages some analysts to believe manufacturers and wholesalers will be comparatively disinclined to try to foist cost increases on to retailers and, ultimately, households.

Stanlib chief economist Kevin Lings, was encouraged by the agricultural component of the index, believing that concerns over rising food prices were abating. But even as he was talking, Eskom was embroiled in hearings on its tariff requests at Nersa, the electricity price controller. If Eskom’s tariff demands are met and if the rand continues its decline, producer costs will be under pressure.

“The good news is that food inflation looks reasonably well contained, helping consumers,” he said.

Elna Moolman, economist at Renaissance Capital, also agreed that the food inflation was well behaved with grain and meat prices actually falling at the farm gate. Thabi Leoka, Standard Bank economist said it was encouraging to see that growth in prices of food at the manufacturing level slipped in December to 9.2% year-on-year from 11.1% in November. Though Leoka did not explicitly say so, but even at this lower rate, prices will double every eight years, something of which the person who controls the household’s purse strings should be aware.

“Nonetheless, we believe that higher food prices will continue to be a risk as the lagged effect of the spike in the global soft commodity prices in mid-2012 will filter into the PPI basket.”

Manqoba Madinane, an economist at Econometrix, said most important was that the manufacturing PPI, which is the largest sub-component and accounts for 62.3% of the index, increased by only 3.7% year-on-year in the month, suggesting that factory input cost pressures were muted.

“There are indications that growth momentum in PPI inflation is in fact slowing down. One can expect a weaker feedback into headline CPI in the medium to longer term. This added to the belief that the CPI is unlikely to breach the Reserve Bank’s upper 6% limit, or if it does it will not be for long,” he said. Some economists said this was largely supportive of the continued recovery in business.