South Africa's consumer food inflation slowed to 6% in February this year, from 7% in January, underpinned by the deceleration across most food products.
Lower food inflation leads to lower food prices, which is good news for consumers.
However, sugar, sweets and desserts remained roughly unchanged from the last months.
Wandile Sihlobo, the chief economist at the Agricultural Business Chamber, said they expected this broad moderation path to continue for most of the products within the food basket over the near-to-medium term.
“However, there are significant upside risks for the bread and cereal products in the food basket because of the potentially poor white maize harvest on the back of the current heatwave and dryness,” Sihlobo said.
Nkhensani Mashimbyi, an economist at Absa AgriBusiness, said the prices of local agricultural products had mostly followed lower global prices due to more supply being available and fewer unexpected shortages causing price increases.
“After the avian flu outbreak caused a reduction in supply, poultry prices peaked in December and have followed a downward price trend thereafter. Pork prices have also been depressed and have demonstrated a decreasing price trend, while mutton prices remain low,” Mashimbyi said.
The economist said despite the persistently drier weather, volume recoveries in the vegetable space had led to price declines.
For grains, on the other hand, the hotter and drier production conditions had led to local prices diverging from the global price trend, with notable increases observed for maize, particularly white maize.
“This poses an upside inflation risk over the next two quarters,” Mashimbyi said.
Paul Makube, senior agricultural economist at FNB Commercial, said headline inflation accelerated faster to 5.6% year on year (y/y) in February, from 5.3% in January, which was slightly above market expectations of 5.5% y/y.
The monthly headline inflation outcome was 1% month on month.
“However, food inflation decelerated faster to the lowest level in 25 months at 6% y/y in February from 7% y/y in January. Except for the sugar, sweets and deserts, which remained flat, the rest of the food subcategories decelerated, with oils and fats extending their trend in negative territory. Oils and fats inflation has been trending negatively for the past 10 months, which is in line with the trend on the international market,” Makube said.
Global oils inflation, as measured by the United Nations’ Food and Agriculture Organisation (FAO), showed a decline of 11% y/y in February and had remained in negative territory over the past 19 months. South Africa was a net importer of vegetable oils, such as palm oil, and the downtrend on the international market boded well for food inflation, he added.
However, a combination of subdued demand conditions and supply pressure weighed heavily on prices, which saw the fruit and vegetable inflation pulling back to single-digit levels.
“Consequently, fruit inflation decelerated to a five‑month low of 5.9% y/y and decreasing by 2.7% m/m. A drill-down into the fruit inflation data shows a sharp deceleration from an increase of 29.6% y/y in January to just 2.9% y/y in February for avocados at R19.6/kg. Bananas followed closely from an increase of 21.2% y/y in January to 4.8% y/y in February at R18.02/kg. Oranges remained sticky on the upside and increased further by 51% y/y in February from 43.7% y/y in January 2024,” he said.
Makube added that in the vegetable category, prices decelerated faster, by 3.2 percentage points (ppt) from the previous month to 9.4% y/y and plunged monthly by 1.7% m/m in February.
“Vegetable inflation has for the first time in 18 months fallen back to single-digit level, which indicates normalisation of production despite the current weather challenge. Of the big-ticket vegetable items, potatoes posted the biggest deceleration of 11ppts after coming in 32.2% higher y/y and a monthly decrease of 4.2% m/m at R21.68/kg. Tomatoes decelerated by 10.8ppts from the previous month to R27.98/kg, which is down 0.4% y/y and 1.4% m/m.”
The senior agricultural economist said the good news for meat lovers was that inflation decelerated for the fifth consecutive month, coming in at 1.5% y/y and falling by 0.5% m/m.
He said the seasonal downturn in demand early in the New Year as well as an improvement in supplies continued to place meat prices on the back foot.
“This trend is likely to continue in the medium term on the back of increased supplies due to the dryness that reduced feed availability for overwintering – the mooted implementation of certain rebates on imported poultry following the recommendation by the International Trade Administration Commission of South Africa (Itac) to the Minister of Trade and Industry,” he said.
Makube said of big concern currently was the raging heatwave and the resultant dryness across the country, especially for the summer crops.
Consequently, the National Crop Estimates Committee had slashed the maize harvest estimate by 12.6% y/y, which had negative implications for the bread and cereals inflation given the massive price response on the upside.
In the oilseed category, sunflower and soya bean crop estimates were down by 6.8% and 22.8% y/y respectively, which might place upward pressure on the oils and fats inflation, added Makube.
Of further concern was the further increases in fuel prices over the past few months, with the latest update from the Central Energy Fund indicating an under-recovery of 19 cents/litre for 95-grade petrol and 18 cents/litre for 93-grade petrol.
However, diesel was positive with an over-recovery of 29 cents/litre and 34 cents/litre for the two grades of diesel (0.05% and 0.005% sulphur), respectively.
While the domestic situational outlook painted a tightening supply outlook and a threat to the inflation trajectory, the good news was that the El Niño weather pattern was tapering off and La Niña was back in the forecasts, meaning a potentially good season lay ahead, reminiscent of two years ago.
“Further, the global grain and oilseed production remains robust and has curtailed price growth in international prices, which continued to filter through to the domestic market. This bodes well for overall food inflation into 2024 if there are no shocks to the system, such as an exchange rate crash,” Makube said.
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