Growth in agricultural and manufactured food prices continues to lose momentum, which is reflected in South African headline producer price inflation (PPI) slowing to 5.9% year-on-year in January from an upwardly revised 7.1% in December, says multinational bank BNP Paribas.

The January figure came in even lower than the bank’s well below consensus forecast of 6.2%. The January PPI inflation figures are based on Statistics South Africa’s new basket and weights (in accordance with the recent consumer price index basket changes), with the index having been rebased to December last year from December 2012 previously.

The slowdown in headline PPI inflation also partly reflects more favourable base effects after prices spiked early last year on the back of the sharp weakness in the currency and the drought, which was propping up manufactured food prices.

On a month-on-month basis factory gate prices climbed 0.4% in January, mainly driven by higher fuel prices in the month, which pushed the prices of coke, petroleum, chemicals, rubber and plastic products 0.5% higher in the month.

Food prices also climbed 0.3% in January it is clear from the detail that momentum growth continues to be lost in grain, fruit and vegetable prices, which recorded a negative monthly price growth.

Metals, machinery and equipment prices and nonmetallic mineral products fell 0.4% and 2.0% respectively in January and were the largest drag on January price growth at –0.1 percentage points (pp).

In year-on-year terms, the largest contributors to the 5.9% rise in headline PPI in January continued to come from food, beverage and tobacco products (+9.5% year-on-year, +3.1pp) and coke, petroleum, chemicals, rubber and plastics (+7.4% year-on-year, +1.6pp).

Notably, headline manufactured food prices continued to lose momentum, slowing to 10.6% year-on-year from 12.2% the previous month because of the softer grains and fruit and vegetable prices.

Meat prices, however, remain elevated at 12.4% year-on-year, reflecting a shortage in supply as farmers restock their herds in the wake of the drought.

Even more importantly, the banks point out that PPI agriculture product prices have now slipped into deflationary territory (–4.8% year-on-year from +5.5%) for the first time since March 2015.

This supports the view that food prices are a strong negative contributor to lower consumer price index inflation this year.