OK, folks, I typically spend Saturday mornings on hiking trails — a habit I picked in my Stellenbosch days. This morning I invited my good friend, Thanda Sithole, on what I hoped would be a hike filled with soccer discussions as Mamelodi Sundowns F.C. and Orlando Pirates F.C. will be going head-to-head today (November 10) at Loftus Statium in the Capital City, Pretoria. But unsurprisingly, it turned out to be a nerdish one, focused on macroeconomic issues, which was also helpful as I spend a lot of time on sectorial and microeconomic aspects.
Although macro dominated the morning, we also talked a bit about food inflation, having it bottomed out in September 2018, at 3.9% y/y – a good recovery from the double digits levels we saw in drought years in 2015-16.
Given the agricultural supply dynamics and despite expectations of El Niño, I don’t foresee food inflation returning to double digits in the foreseeable future. We have large grain supplies which should keep South Africa’s food price inflation benign for some time.
The price dynamics are already reflected in the South African Agricultural Commodities Price Index (see Featured Image of the article). This is the first time I am posting this Index, so its only right that I explain it.
The Index is made up of five agricultural commodities, namely: yellow maize, white maize, wheat, soybeans and sunflower seed – with weights derived from export volumes. These are broadly traded commodities and their products have a higher weighting in South Africa’s food price index.
Maize accounts for a larger share of export volumes of the aforementioned commodities, hence it’s a major swing of the overall Index performance.
So, as the headline says, the depressed South African agricultural commodities prices are a welcome relief for consumers given the economic headwinds that constrain consumer’s buying power at the moment.
For a discussion on the transmission mechanism from commodity prices to food price inflation – I discussed it earlier in the year on this post.
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