Food inflation has been topical over the past few months, and South Africa saw double-digit levels from mid-2022 to mid-2023.
This was not unique to South Africa but a global phenomenon underpinned by various factors, including drought in South America; China’s strong demand for grains and oilseed; higher energy prices and the Russia-Ukraine war.
Positively, from March 2023, South Africa’s consumer food price inflation began to slow, from 14,4% at that time to 8,0% in September 2023. The product prices underpinning the deceleration throughout this period were primarily bread and cereals; meat; fish, and oils, and fats.
But October 2023 disrupted the six-month consecutive decline, with consumer food inflation having quickened to 8,8% from 8% the previous month. The product prices underpinning this increase were mainly milk, eggs, cheese, fruit and vegetables.
Still, I believe the recent rise in the price of these products will probably be a temporary blip. They are a reaction to brief supply constraints in the past few months.
The avian flu was the main issue behind the egg supply constraints, which remain a challenge although not as acute as we saw in September and October.
Regarding vegetables, potatoes were mainly the driver of the prices in the basket as the harvest was limited following quality challenges caused by irrigation disruptions in some fields due to load-shedding in much of the year’s first half.
But with interventions underway in the poultry sector, such as importing fertilised eggs to rebuild the parental bird stock lost from avian flu, importing table eggs (powder and liquid eggs that would help in baking processes and free the whole eggs for other consumption), and the ongoing discussions about vaccinations to curb the spread of the disease, I am hopeful that the prices will normalise in the coming months.
Furthermore, eggs have a lower weight in the food inflation basket, at 0.4%, which means their impact might not be as pronounced in an overall inflation figure.
I expect a similar recovery in vegetable and fruit supplies in the coming months, which will help ease the current upside price pressures. Load-shedding has reduced somewhat, and farmers have invested in alternative energy sources, which is helpful for production conditions.
Overall, I remain optimistic that South Africa’s consumer food price inflation will return to a moderating path going into 2024. Some products that will probably drive such a price trend include grain-related products, as well as fats and oils.
Farm-level grain and oilseed prices remain lower than a year ago because of improved global and domestic supplies, notwithstanding the trade risks. This is one of the catalysts behind the slowing price of grain-related products and fats and oils and the expected favourable trend for the coming months.
Notably, these are products with a higher weighting in the food basket. Favourably, meat price inflation has also continued to slow. However, given the anticipated festive season demand and potential small price increase, the meat price trend could slightly change over the festive season months.
Also crucial for the food inflation outlook going into 2024 is highlighting that El Nino’s forecast in the 2023/24 summer crop season is another aspect to keep an eye on, although we remain optimistic that it will have a mild impact on the sector and thus keep production at decent levels and, by extension, sustain moderating food prices.
There are good soil moisture levels across South Africa following several rainy seasons.
Furthermore, the weather forecast remains reasonably favourable for the year, with El Nino expected to intensify from March 2024.
Farmers are busy planting across the country, and they hope the area planted with summer grains and oilseeds will increase from a year ago.
Still, the prices of these products are influenced by global developments as we are an open economy interlinked with the world markets. So, monitoring global agricultural developments, geopolitics, and energy markets remains essential.
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