Consumer confidence has rebounded from the low recorded in the second quarter, but it remains firmly within depressed territory. Photo: Waldo Swiegers/Bloomberg/Getty Images
Retailers such as Woolworths, Shoprite and Pepkor are set to put a further squeeze on already strained South Africans as they look to offset inflation by raising the price of goods in their shopping aisles.
Supply chain disruptions since the Covid-19 pandemic began about two years ago and the outbreak of war in Russia and Ukraine earlier this year have combined to stoke inflation around the world as oil prices, which feed into fuel, fertiliser and other sectors, have gained significantly.
Value retailer and the owner of Pep and Ackerman, Pepkor, is the latest to flag price increases because of inflation. “Higher levels of price inflation are expected for the next summer season starting in August 2022,” Pepkor chief executive Leon Lourens said in a statement.
According to the latest data from the Bureau for Food and Agricultural Policy, the year-on-year inflation on food and non-alcoholic beverages increased by 6% in April, synonymous with that of Statistics South Africa for the same period.
The increase was a result of an increase in the price of vegetables, oils, meat, grains and cereals.
Nishlen Govender, a portfolio manager at Citadel Investment Services, said retailers such as Tiger Brands and Pioneer Foods will push prices on to the producer and these will eventually be passed on to consumers.
Tiger Brands, which produces Albany bread and Tastic, expects inflation on most of its food categories to rise in the next six months.
In its results for the six months to end March, the company experienced price inflation of 3%, which helped drive its revenue growth by 2% to R16.8-billion.
“Inflation in the second half is likely to run into double digits with the full impact of this on consumer demand for our brands, a key unknown,” the group said.
Shares from the food producer have not benefited from the higher pricing power, with its valuation falling just under 20% this year.
Another food producer, the Bull Brand and Pakco owner RFG Foods, said it has struggled with input inflation over the six months ending 3 April, and this has affected its margins across the business.
South African inflation is still within the target range of 3% to 6% set by the South African Reserve Bank; it has not yet reached the highs it has reached in the US and Europe.
Govender said that with the increase in the fuel price, inflation is going to be pushed down to the consumer.
“We’re going to defer to our consumer staples and the baskets are going to become smaller, and when that starts happening, it will be problematic for economic growth,” he warned.
Sasfin’s chief global equity strategist, David Shapiro, said inflation takes away discretionary spending, which means that other retailers, such as those in the clothing sector, will also feel the pinch.
“If more income is directed to fuel costs and rising food costs, automatically that means you can’t go out for takeaways or spend elsewhere. So it certainly is going to affect them [clothing retailers] and that’s the gearing that you’re going to find. That is the impact that rising inflation is going to [have] on our spending habits.”
Shapiro said retailers have no alternative but to pass price increases on to consumers.
“Retailers themselves have to test it and say, ‘well, how far can we go? How far can we push [prices] up?’ And I think that’s the danger, because retailers are still testing how far they can push up prices.”
Despite South African consumers being hard squeezed, leading retailers have had a mixed performance on the JSE.
For the year, Woolworths is just under 4% stronger, Shoprite gaining just under one percent, but Spar has dropped 10%. The Foschini Group has been among the strongest performers, gaining 15%.
Shoprite has also forecast an increase in its prices for the remainder of the year.
“As a business we have worked hard to keep price increases contained … inflation pressures are mounting and, as such, we expect selling price inflation to move higher during the second half of our financial year,” chief executive Pieter Engelbrecht said in a statement.
Shapiro says inflation, high interest rates and high fuel prices are not going to affect the high-income earners that much, “although it’s enough for them to notice, but they can still get by”.
“It’s going to hurt the low-income earners and that’s why emerging or developing market countries like South Africa are so vulnerable to this global inflation — much more than anybody else, because food and energy make up such a big parcel of our product spending,” Shapiro said.
The department of mineral resources and energy announced this week that the price for 93 unleaded petrol had increased by R2.43 a litre and 95 by R2.33 a litre.
Anathi Madubela is an Adamela Trust business reporter at the Mail & Guardian
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