Consumers are in for a bumpy ride with food price inflation on the rise and expected to hit the 5 percent mark soon, sparked by the global food shortage, chaotic weather and higher fuel and electricity prices.
This is according to economists and the findings of the latest National Agricultural Marketing Council’s quarterly food price monitor, which tracks the price of a basket of 65 food items in urban areas and 39 items in rural areas.
And economists say that more petrol price hikes and an increase in interest rates may be on the cards.
According to the food price monitor, the January 2011 consumer price index (CPI), released by Statistics SA, showed food and non-alcoholic beverages inflation of 3.1 percent between January 2010 and January 2011. Headline CPI was up 0.4 percent to 3.7 percent for the period.
However, the food and alcoholic beverages index increased by 2.2 percent, meat by 6 percent, fruit by 5.8 percent and sugar by 5.6 percent.
“The increase in annual food inflation from 1.5 percent in December 2010 to 3.1 percent in January 2011 has introduced an upward cycle in food inflation and under the current world market conditions this increasing trend has significant momentum.
“This momentum is provided by strong bullish underlying fundamentals in global soft commodity markets and soaring oil prices. Even if the exchange rate gains some lost ground over the next three months, higher oil and, therefore, fuel and energy prices, will have to enter the food supply chain and consumers will likely have to dig deeper into their pockets,” the marketing council’s report said.
The prices of cold beverages, processed food, bread and cereals, and other food increased by 5.3 percent, 3.7 percent, 2.9 percent and 2.7 percent respectively. The overall global food price index increased 33 percent for the period.
“It is likely that the rise in food inflation will gain pace to reach a level of 4-5 percent within the next couple of months,” the report forecasts.
Recovery
“Higher world meat prices are driven by lower livestock numbers in the case of cattle and sheep and a strong recovery in world demand following the economic crises. The consistent growth in pork and chicken meat consumption in China and India also provides a constant support for meat prices.”
However, David Wolpert of the Association of Meat Importers and Exporters SA, said it was “very possible” that meat intended for export could move on to the local market after the government’s ban on all meat exports owing to the outbreak of foot-and-mouth disease in northern KwaZulu-Natal.
However, he said, the country only exported about 2 000 tons of meat, including poultry a month, while importing 30 000 tons.
“That could affect prices and there could be a surplus. It also obviously depends how long this ban continues.”
Nedbank economist Nicky Weimar said there was a threat of higher global food inflation this year and fears of oil supply disruptions were being priced into the market
“In China demand is outstripping supply and inflation is now starting to emerge. Chaotic weather is pushing up food prices in emerging markets. Food inflation is rocketing as a result of floods and drought,” Weimar said.
NKC Independent Economists managing director Natalie King-Conradie said petrol and diesel price hikes of 43c and 64c this week, and a further 25 percent Eskom price hike later this year would exacerbate the upward food price spiral.
“Consumers’ experience when buying things and paying bills is that inflation is a lot higher than the official statistics and it’s just going to pile up. A few years ago food inflation was running at 20 percent and I think the risk is that we could go back to those kind of levels.”
“There is a global food shortage across the board and there is the issue of food security,” King-Conradie said. She said consumers should brace for further petrol price increases in coming months following the 18c increase in the fuel level early next month.
Efficient Group economist Dawie Roodt said inflation could exceed 6 percent by year end and he expected a 250 basis-point interest rate increase in the second half of the year.
However, he said the “silver lining” was that the upswing in demand in some countries fuelling inflation was a sign of economic growth. - Independent on Saturday