South Africa's producer price index (PPI) rose by 18.9 percent year-on-year in July from 16.8 percent year-on-year in June, Statistics South Africa (Stats SA) data on Thursday showed.

The PPI rose 2.7 percent on a monthly basis after June's monthly increase of 2.6 percent.

PPI was expected to be at 17.6 percent year-on-year, a survey by I-Net Bridge found, with forecasts ranging widely from 15.4 percent year-on-year to 19 percent year-on-year.

Dennis Dykes, Nedbank:

"It's a horrendously high number. PPI does tend to be volatile, but that it's this high is shocking. We knew it was going to go up, but it is still fairly surprising and well above consensus."

George Glynos, ETM:

"It's not a particularly good number and even exceeds our most pessimistic forecasts. It will give the markets a dose of reality because pipeline pressures remain strong and, although we do anticipate inflation will trend lower throughout 2009, perhaps investors need to rethink their trajectory."

Annabel Bishop, Investec:

"PPI inflation came out significantly higher than expected. Higher electricity prices during winter and the recently approved tariff increase from the regulator pushed up the PPI, with the moderation in rand oil prices wholly insufficient to provide a counterbalance. However, unexpected additional price pressures were also recorded from a broad range of other items.

"We expect no more interest rate moves this year. The sharp drop in the level of consumer inflation in 2009, due to the planned re-weighting and changes in items surveyed, is likely to cause the SARB to cut interest rates significantly, beginning with a 50bp easing at the April 2009 MPC meeting."

Rob Jeffrey, Econometrix:

"The PPI is a dose of reality. It shows that there are still inflationary pressures on the economy. While there are going to be decreases in certain prices, like fuel, there are still underlying inflationary pressures. The increases in the electricity prices are still going to be felt and we cannot expect inflation to drop immediately.

"I believe that the outlook for interest rates is that there may be room to lower them slightly, but there won't be a dramatic fall in interest rates in the next 12- to 18-month period."

I-Net Bridge