/ 28 August 2023

South Africa’s consumer food inflation likely to continue slowing

Woolworths, Shoprite, Spar test consumers’ resilience with higher prices
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

One would be forgiven for missing crucial economic data releases during the busy calendar of the Brics summit held this past week in Johannesburg. One such data was the inflation figures, which showed that South Africa’s headline consumer inflation fell to 4.7% in July 2023 — the lowest since July 2021 — from 5.4% in June. This was better than the market’s forecast of 4.9%. The sharp fuel price deflation and easing food price pressures were some of the main drivers of this deceleration in headline inflation.

I was particularly watching the data in the food category of the inflation basket, which had remained elevated over the past few months, a trend that we saw globally. But the recent data paint a promising picture. For example, South Africa’s consumer food inflation slowed in July, recorded at 10% from 11.1% in the previous month. 

The product prices underpinning this deceleration are primarily bread and cereals; meat; fish; and oils and fats. Although there are renewed risks in global agriculture, such as India’s decision to ban specific categories of rice exports and the Black Sea Grain Deal Initiative that facilitated grains and oilseeds exports from Ukraine terminated, we are still optimistic that South Africa’s consumer food inflation will continue to slow during the second half of the year. 

The products that could underpin the slowing food inflation trend will probably remain similar to those in the past few months. Notably, red meat prices, which have softened at the farm level, should continue on this trend at the retail level in the coming months. Fruit prices should also remain affordable because of improved domestic supplies. 

But there are some risks in some food product categories. For example, the recent decline in “oils and fats” products in the inflation basket mirrored the softening price trend we saw in the global environment a few months ago. But this trend may change slightly in the coming months because we are already seeing the changes in the global environment. 

In July 2023, the Food and Agriculture Organisation’s vegetable oil price index was at 130 points, up 12% from June. Significantly, this marked the first increase after seven months of consecutive declines. This increase was a result of Black Sea concerns, mainly sunflower oils, and the subdued production conditions of palm oil, a product South Africa imports in large volume. 

One will have to keep an eye on the global vegetable oil prices because their price trends, over time, may reflect in South Africa, but not in equal proportion to the global price changes.

Regarding the “bread and cereals” product prices, the Black Sea d challenges and India’s rice exports ban remain an upside price risk. With South Africa importing a million tonnes of rice and similarly exposed to wheat imports, the disruption in trade of these commodities and the length of it could have implications on global price and, ultimately, South Africa’s “bread and cereals” component of the food inflation basket. 

Still, I have not seen a material change in prices for now, and we should not be alarmed. What is essential to monitor is the extent of price changes and their duration. Importantly, there is roughly a lag of three to five months between the price changes at farm and retail levels. Hence, I expect the prices of grain-related products in the inflation basket to maintain a softening path regardless of the recent disruption in grain prices. 

Beyond the global dynamics, South Africa has a favourable agricultural season. For example, the 2022-23 maize harvest is estimated at 16.4 million tonnes, 6% higher than the 2021-22 season’s harvest and the second-largest harvest on record. Soybean harvest could reach a record 2.8 million tonnes. 

Be that as it may, the prices of these products are influenced by global developments because we are an open economy interlinked to the world markets. Other field crops and fruits also show prospects for decent harvest this season. 

These increased supplies support the slowing food inflation view I outlined above. But there are now renewed upside global risks and energy costs issues in the domestic market that need constant monitoring.

Wandile Sihlobo is chief economist of the Agricultural Business Chamber of South Africa, author of Finding Common Ground: Land, Equity, and Agriculture and visiting research fellow at the University of the Witwatersrand’s School of Governance.