By Wikus Olivier
Picture this: you walk into the grocery store, expecting to find some relief from rising grocery prices since inflation is purportedly decreasing, only to be met with the same or even higher price tags.
It’s frustrating and bewildering, leaving you questioning why prices seem stuck in an upward spiral. And it is not easy considering your salary increase (if at all) compared to inflation; it is difficult to keep up with incessant costs.
I’d like to share some valuable insights to help you understand the current grocery price challenges and, in the process, motivate you to conquer these encounters with financial savviness.
Here are a few points that can help you, the South African consumer, understand why grocery prices may tend to fluctuate.
It is important to understand the role of inflation and other aspects:
What is inflation?
Inflation is the general increase in the prices of goods and services over time. When inflation occurs, the purchasing power of money decreases, meaning that you need more money to buy the same amount of goods as before.
The impact of inflation on grocery prices in South Africa
Inflation has a direct impact on grocery price scales in South Africa. As the overall price level rises, the cost of producing, transporting, and selling groceries can increase.
This affects the prices of items such as milk, bread, fruits, and vegetables, among others. Manufacturers, suppliers, and retailers often pass increased costs onto consumers, leading to higher prices at the grocery store.
According to the Pietermaritzburg Economic Justice & Dignity Group (PMBEJD) Household Affordability Index for July 2023, the cost of the average household food basket has increased by 7% year-on-year, indicating the strain inflation can place on grocery prices.
The most well-known and vital indicator used to measure inflation is the Consumer Price Index (CPI), which measures the percentage change in the price of a basket of goods and services consumed by households.
The basket includes essential items like food, housing, transportation, healthcare, and other everyday necessities.
When the CPI increases, it signifies a rise in the overall cost of living, leading to higher prices for goods and services within the basket, including groceries.
A practical example
Concerning the price difference between two milk brands, for example, several factors may come into play.
To break factors down and mention just a few:
1. Brand: Different brands often have different pricing strategies. Some premium or popular brands may charge higher prices for perceived higher quality or other branding factors.
2. Production costs: The cost of production, packaging, labour, and distribution can vary between different suppliers. This can influence the final retail price of the product.
3. Ingredients or production process: If one brand uses more expensive or premium ingredients or follows a unique production process, it can lead to cost differences.
4. Economies of scale: Larger companies may benefit from economies of scale, allowing them to negotiate better deals with suppliers and reduce costs compared to smaller producers.
5. Market demand: Pricing can also be influenced by consumer demand and perceptions of value. If customers are willing to pay a premium for a particular brand, it may justify the higher price.
6. Maintaining profit margins: A brand or brands may need to increase the prices of their milk products to maintain profit margins, for example.
Grocery affordability factors
Even when inflation is falling or lowering, as is currently the case, grocery prices may remain high. This is because prices are relative to the overall inflation rate.
While the rate of inflation may decrease, the prices of groceries may not decrease at the same rate or may not decrease at all. This could be due to various factors, like in-store stock that was produced by higher costs (before a decline in inflation), for example.
Additionally, the Bureau for Food and Agricultural Policy (BFAP) identifies factors like the weaker rand, persistent load shedding, adverse weather conditions, geopolitical unrest, supply chain disruptions, and animal diseases that contribute to persistently high food prices in South Africa.
What is the impact on you, the consumer?
Higher grocery prices are indeed causing financial challenges, especially if you have a limited monthly budget. It can lead to increased expenses for essential items, making it harder for you to afford other necessities.
As a primary household shopper, you may feel the impact of inflation on your grocery bills, making it essential to find smart ways and tricks to try and save money while grocery shopping. Compare prices and consider alternatives when budgeting for groceries.
By being informed and making smart choices, you can navigate the grocery shopping landscape effectively, ensuring you get the best value for your money today and tomorrow.
Armed with this knowledge, you can approach grocery shopping with confidence and financial savvy, making decisions that keep your budget in check.
Wikus Olivier, managing director, CreditSmart Financial Services.
*The views expressed here are not necessarily those of IOL or of title sites.
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