South Africa's consumer food inflation slowed in June, recording at 11.1% from the 12.0% in the previous month.
Statistics SA (Stats SA) yesterday said the annual headline inflation cooled to 5.4% in June from 6.3% year-on-year in May, sinking below the upper limit of the South African Reserve Bank’s monetary policy target range.
Annual inflation for food and non-alcoholic beverages (NAB) slowed for the third successive month, cooling to 11.0% from a high of 14.0% in March
Most food and NAB components recorded lower inflation rates in June, with the exception of vegetables, fruit, and sugar, sweets and desserts.
Agricultural Business Chamber (Agbiz) chief economist Wandile Sihlobo said they were still positive that South Africa’s consumer food inflation would continue to slow during this 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 a softening price trend we are seeing in the global environment, as South Africa still imports its palm oil usage. For example, in June 2023, the FAO’s vegetable oil price index was at 117 points, down 22% year-on-year,” Sihlobo said.
However, Agbiz said there were renewed risks to global agriculture, such as India threatening to ban the export of rice, and the Black Sea Grain Deal Initiative that facilitated grains and oilseeds exports from Ukraine recently being terminated.
With South Africa importing a million tons 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, it said.
“Still, we should not be alarmed; what is important 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 developments in the Black Sea Grain Deal and India's rice exports, which have not dominated the news as much. Importantly, there is roughly a lag between three to five months between the price changes at farm and retail levels. Hence, we expect the prices of grain-related products in the inflation basket to maintain a softening path regardless of the recent disruption in grain prices.”
Meanwhile, Paul Makube, a senior agricultural economist at FNB Commercial, said domestically, any upswing in global prices would impact South African prices due to the open economy with more than 60% exposure to the international market.
“For example, we are a net importer of wheat. Domestic prices follow import parity with international prices and the rand exchange rate being major drivers. Nonetheless, our direct exposure to the two feuding countries is minimal although Russia is back on the market and accounted for 16% of the total SA wheat imports for the 2022/23 season,” he said.
For other agriculture commodities, Makube said South Africa enjoyed abundance with bumper summer crops and horticulture crops.
“The 2022/23 maize harvest estimate is sitting comfortable at 16.4 million (+6% y/y) with good carry-over stock of 2.8 million tons for the 2023/24 marketing season,” he said.
Makube said that, overall, there was limited upside pressure on domestic agriculture commodity prices in the short term, but the non-resolution of the dispute to ensure movement of grain in the Black Sea region might muddy the longer-term outlook.