Since it became clear that the country had moved past the worst of the cost-of-living crisis, the question has been, “When will things get better?” (Waldo Swiegers/Bloomberg via Getty Images)
One of the key data releases this week was the inflation figures for June 2023, which continued to show a moderating picture. South Africa’s consumer price inflation was 5.4% in June 2023, down from 6.3% in May.
If we zoom into one of the categories in the inflation basket, which underpinned the increases we observed over the past month — food — the trend is also encouraging. For example, consumer food inflation slowed in June 2023, recorded at 11.1% from 12.0% the previous month.
The product prices underpinning this deceleration are mainly bread and cereals; meat; fish; milk, eggs and cheese and oils and fats.
While there are renewed risks in global agriculture, such as India’s ban on rice exports and the Black Sea Grain Deal initiative, which facilitated grain and oilseeds exports from Ukraine, being terminated, I am 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 be similar to those in June. 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, although no longer in deflation, should remain affordable because of improved domestic supplies. The decline in “oils and fats” products is in line with the softening price trend we are seeing in the global environment, as South Africa still imports its palm oil. For example, in June 2023, the Food and Agricultural Organisation of the UN’s vegetable oil price index was at 117 points, down 22% year-on-year.
Admittedly, there are renewed risks on “bread and cereals” product prices. 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 for global prices and, ultimately, South Africa’s “bread and cereals” component of the food inflation basket.
Still, we should not be alarmed. What is essential to monitor is the extent of price changes and their duration. So far, we have seen notable gains in international and domestic maize and wheat prices.
Whether these price gains are sustained will depend on the Black Sea Grain Deal developments and India’s rice exports. Importantly, there is a lag of roughly between three and 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 had 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. The 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 as we are an open economy interlinked to the world markets.
Other field crops and fruit also show prospects for a decent harvest this season. These increased supplies support the slowing food inflation view we expressed, along with the global agricultural prices, which had declined notably in the months before the termination of the Black Sea Grain Deal and India’s ban on rice exports, the impacts of which are still to be fully felt. For example, the Food and Agricultural Organisation of the UN’s Global Food Price Index, which measures changes in the prices of international agricultural products, averaged 122.3 points in June 2023, down by 23% from its peak in March 2022. It will be helpful to monitor this index’s July 2023 reading.
Overall, the non-renewal of the Black Sea Grain Deal and the ban on rice exports present upside risks to food inflation, although these developments still don’t change the optimistic view I outlined in this piece.
Wandile Sihlobo, chief economist at the Agricultural Business Chamber of SA (Agbiz) and senior lecturer at Stellenbosch University’s Department of Agricultural Economics, is the author of Finding Common Ground: Land, Equity, and Agriculture.