The elevated levels of South Africa’s consumer food price inflation are unsurprising and illustrate an environment where there are still tail-end effects of generally higher agricultural commodity prices, says Agricultural Business Chamber chief economist Wandile Sihlobo.
Sihlobo was commenting in the wake of data released by Statistics South Africa on Wednesday.
The data showed that inflation had risen for the first time since October as annual consumer inflation rose for the first time in four months, edging to 7.0% in February from 6.9% in January.
Food and non-alcoholic beverages and transport were the main contributors to the inflation rate in February as prices for food and non-alcoholic beverages increased by 13.6% over the past 12 months, up from 13.4% recorded in January.
The reading in February was the highest since April 2009, when it was also 13.6%. Annual inflation for bread and cereals was 20.5%, slightly lower than January’s 21.8%. Maize meal, an important local staple, continued to see high rates of inflation. Its price index increased by 2.2% between January and February, taking the annual rate to 34.7%. Notable monthly price increases were also recorded for rusks (up 6.8%), macaroni (up 4.4%) and savoury biscuits (up 4.0%).
Meat inflation continued to accelerate, reaching 11.4% in February from 11.2% in January. This was the highest annual increase for meat since February 2018 (also 11.4%). The monthly rate, however, dropped to 0.2% from 2.6% in January. This was the lowest monthly increase for meat since February last year when there was no change.
Moreover, Sihlobo said the results of load shedding, which intensified in January this year would likely underpin prices for a few months and dissipate as the new measures taken by Finance Minister Enoch Godongwana and the Agriculture, Land Reform, and Rural Development Minister Thoko Didiza start to gain momentum.
“The measures include the diesel rebate and load curtailment possibilities, among others. These are mainly at the production level and do not include retailers,” Sihlobo said.
John Hudson, Nedbank’s head of agriculture, said on Wednesday that the well-documented challenges that plagued the agricultural sector last year, along with the intense load shedding and rising interest rates this year, were still filtering through with continued pressure on food prices.
“The latest Agbiz/IDC Agribusiness Confidence Index, which fell to a low of 44 in quarter 1 2023, is confirmation of the pressure in the sector and the negative sentiment. All of this does not bode well for the consumer with food prices escalating on the back of a very tough business environment,” Hudson said.
Dr Marlene Louw, the senior agricultural economist at Absa Relationship Banking, said food and non-alcoholic inflation were extremely high due to weaker exchange rates, the impact of load shedding, and the lagging effect of high agricultural commodity prices in the last quarter of last year and the first months of this year.
“Although agricultural commodity and product prices such as maize and beef carcass prices have followed a downward trend since the February 2023, the effects of this are not yet apparent in retail prices. We expect that food inflation would start easing from March onwards.
“This would be underpinned by higher base effects of March 2022 and easing commodity prices. The latter is, however, expected to be off-set, at least to some degree, by the cost of load shedding and a weaker rand,” Louw said.
Sihlobo said that positively the agricultural commodity price trend had changed globally and was now softening, and this would soon be realised in South Africa.
Agbiz said the meat prices, which underpinned the uptick in February, could also soften, as was the case already in red meat prices.
“All this will be positive. Also, sharp vegetable price increases were temporary and influenced by weather conditions. Taking all these aspects together, we should see South Africa’s consumer food price inflation softening from around May into the year's second half.”
Overall, Sihlobo said, South Africa's annual consumer food price inflation should average around 7% (from 9.5% in 2022), assuming notable decelerations in bread, cereals, meat, oils, fats and fruit.
“This assumes notable deceleration in the year’s second half of the year, and the base effects from last year elevated inflation levels.”
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