While manufacturers and other interest groups plead for a weak rand policy, consumers pay the price when the currency depreciates. This was demonstrated yesterday when Statistics SA reported that food prices rose 2.8 percent last month, after increasing 2.1 percent in September.
The monthly price surges pushed year-on-year food inflation to 6.7 percent last month from 6.1 percent in September and 5.1 percent in August. The rising trend comes despite the 8 percent fall in average food prices globally over the first 10 months of the year, compared to the same period last year, the UN Food and Agriculture Organisation (FAO) says.
The reason is the weaker rand, Renaissance Capital SA economist Elna Moolman says. The currency spiked to R8.89 to the dollar last month from a September low of R8.20.
Yesterday, it was once again threatening to breach R9, when it was bid at R8.95 at 5pm.
A weak currency increases the cost of food imports, as well as the price of imported equipment and other agricultural inputs like fertiliser.
And Moolman noted: “Some food prices, such as wheat, always trade at import parity prices since we are a net importer. So, the rand has an effect on the wheat we import, but also the wheat we produce.”
Import parity pricing allows local producers to add on the costs of transport and tariffs paid by importers.
“While we had expected upward pressure on food prices, meat and grain in particular, the magnitude of total food inflation exceeded our expectations,” Moolman said.
Although domestic maize prices have fallen in recent months from their peak in July they remain higher than they were in October last year. And there has been a knock on effect as grain is used as feedstock for cattle and chickens.
Seasonal factors were also at work. Citi economist Gina Schoeman, said: “The meat price recovery continues as a result of farmers looking toward the festive season and choosing to slow down the heavy slaughtering of cattle from earlier this year. As meat supply retreats and consumers demand more, we expect meat prices to remain a major support for food inflation.”
Overall consumer inflation rose to 5.6 percent last month from 5.5 percent in September and 5 percent in August.
Other drivers of overall inflation were petrol prices up 15.6 percent and housing and utilities, 6 percent.
Investec group chief economist Annabel Bishop predicted that the Reserve Bank monetary policy committee would leave the 5 percent repo rate unchanged when it wraps up its meeting today, despite the weak economic conditions.
She said inflation was higher than the repo rate and predicted the gap between the repo rate and inflation would widen toward 1.5 percentage points by the middle of next year. “This means the Reserve Bank may have offered excessive stimulation by trimming interest rates, by a half percentage point, in July.”
She said the central bank had “no option but to leave the repo rate unchanged despite the slowdown in growth due to work stoppages in the second half of the year”.
Nedbank also predicted the central bank would leave the rate unchanged today.