Food prices edging higher despite slowing consumer inflation
|Published
After an eight-month downtrend, South Africa’s consumer food price inflation slightly edged up 4.1% in August in spite of headline consumer inflation slowing to 4.4% and giving assurances to the SA Reserve Bank to begin its rates-cutting cycle.
Statistics South Africa on Wednesday said that annual bread and cereals inflation quickened for a third successive month while the meat index increased on an annual basis.
Wandile Sihlobo, chief economist at the Agricultural Business Chamber (Agbiz), said that the products underpinning this mild increase were bread and cereal, meat, vegetables, fish, and milk, eggs and cheese.
Sihlobo said that while a slight uptick was expected, they remained sceptical that price increases would be significant in the coming months.
“The significant upside risk we have highlighted for some time is the grain-related products in the food basket because of the poor summer crop harvest due to the recent drought,” Sihlobo said.
“For example, South Africa’s 2023-24 maize harvest is estimated at 13.06 million tons, down 21% from last season.
This sharp decline in harvest prospects signifies the harsh impact of the mid-summer drought, and the regions most affected were the white maize growing areas, a staple crop that is also scarce in the world market.
“Thus, white maize prices have rallied in recent months, while yellow maize prices have remained sideways.
The primary issue is the potential strong demand for white maize from the southern Africa region to the first quarter of 2025.”
With that said, Agbiz said it did not expect the potential price increase to be substantial as the forecasts from the International Grains Council (IGC) signalled the possible higher global wheat and rice production in the 2024-25 season, estimated at 799 million tons (up 0.6% year-on-year) and 528 million tons (up 1.2% year-on-year), respectively.
“These grains could help mitigate the supply issues related to white maize, as these are staple substitutes. South Africa, which imports nearly half of its annual wheat consumption (about 1.5 million tons) and approximately one million tons of rice annually, would benefit from favourable global production conditions and the likely softening of prices,” it said.
“Moreover, the relatively less depreciated domestic currency will also help ease the costs of imported foods.”
Sihlobo said the increase in the prices of vegetable products would likely be temporary and mirror the disruptions due to weather-related issues.
“We have already seen the volume of various vegetable products improving in fresh produce markets. While price inflation has increased somewhat in the case of meat, this may remain mild as the different suppliers are cognisant of the weak consumer demand.”
John Hudson, head of agriculture at Nedbank Commercial Banking, said the impact of El Niño and the fall-off in summer crop production, in particular the white maize harvest, was always going to filter through and impact food price inflation.
“Therefore, the slight uptick in food inflation to 4.1% was expected, but we do feel that, going forward, any future increases will be muted,” Hudson said.
“On the import front there is some good news with key commodities such as wheat and rice expected to benefit from higher world production.
“This could lead to lower prices for some staple foods and, with the added benefit of the recent rand strength, this should help alleviate some of the pressure.”
BUSINESS REPORT