Data released by Statistics South Africa yesterday indicated that compared to last year, consumer food price inflation could be somewhat more moderate this year. But this all depends on whether crop harvests in the country hold strong despite damage caused by excessive rains.
For the whole of 2021, the consumer food price inflation averaged 6,5%, slowing marginally to 5,9% in December. The product prices underpinning this slight moderation include bread, cereals, and fish. On the other hand, high prices for grains, vegetable oils and meat for the past few months were the primary drivers of consumer food price inflation.
However, according to Agricultural Business Chamber (Agbiz), it is likely that consumer food price inflation could be somewhat moderate this year compared to last year. This will be dependent on how much damage the excessive rain across South Africa has in store for agricultural production and global prices.
Wandile Sihlobo, chief economist at Agbiz, said that the overall impact the damaging rains will have on crop prices remains uncertain.
“First, there have admittedly been delays in crop plantings and damages in some areas due to flooding. Still, the scale of this disruption will only be precise after the release of the preliminary summer crop planting data on January 27 and production estimates data at the end of February,”
He explained that only then could a reliable view on the possible size of imports needed be formulated.
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Watch out for meat prices
The increases in domestic agricultural commodity prices have primarily been underpinned by global prices over the past two years, Sihlobo explained.
Because South Africa, a relatively small player in global agriculture, is linked to the global market, the general rise in global prices overshadowed the improved domestic crop supply in the 2020/21 production season.
Sihlobo explained that with global grains production estimates relatively optimistic in 2021/22 compared to the previous season, despite the La Niña induced dryness in parts of South America, the stocks are set to improve slightly.
“It is plausible that prices could move sideways. To an extent, this will bode well with the domestic consumer food price inflation path.
“If we account for the base effects and [these] points, it is possible that consumer food price inflation could be somewhat moderate this year compared to 2021,” Sihlobo said.
South Africa’s cattle slaughtering activity was relatively lower in 2021 than in 2020. As a result, he added, meat is the essential data to watch domestically, which could present upside risks to consumer food price inflation.
“The continuous rebuilding of the cattle herd since the 2016 drought, combined with foot and mouth disease last year, were amongst the factors that contributed to modest slaughtering activity. The direction slaughtering will take this year will matter for meat prices,”
Poultry import tariffs that came on last year was another important issue to remember. According to Sihlobo this year’s base effects will likely positively affect the consumer price inflation moderation path, Sihlobo said.
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