Factory gate prices -- as measured by Statistics South Africa's producer price index -- slowed to 14.5 percent year-on-year in October from 16 percent in September, the agency said on Thursday.

According to Statistics SA, the major contributors to the decline were electricity, mining and quarrying and petroleum and petroleum products.

However, forestry, paper and paper products and rubber and plastic products pushed the index higher. Meanwhile fresh produce contracted for a third month.

Commenting on the data, Nedbank's group economic unit said:
"Producer price inflation will continue to ease over the coming months."

Commodity prices, which were an important factor behind this year's surge in prices, had fallen sharply over the past few months and were likely to fall further in the coming months, Nedbank said.

Prices of goods used in the construction industry, which had risen sharply due to the boom of the previous years, were set to decline.This came as the prospect of significantly weaker growth forced companies to put expansion plans on hold.

"There has already been some of this, with steel and brick makers announcing large price cuts."

Nedbank said that food prices at the agricultural level would ease further, due to a good summer harvest and lower international food prices.

"Over the coming months, this will feed through into prices at the manufacturing level."
While inflation was easing and a weaker rand remained a concern, the greater risk presently lay with the local economy, Nedbank said.

It was "clearly faltering under the pressure of high domestic interest rates and a weak global economy".

Given easing inflation and weak economic growth, significant monetary policy easing was expected in the months ahead.

"Although the forward rate curve is pricing in a cut at the December meeting, we believe that this is unlikely. First, the Reserve Bank might be concerned that a cut may have a disproportionate impact on the rand in thin markets over Christmas.

Authorities might also be concerned that this might send the wrong message to households.
The next time the monetary policy committee met after December would be in February.

"As a result, they will probably opt to cut rates by 50 basis points. Thereafter we expect the bank to cut rates by a further 200 basis points [two percent] over the course of the year."