Durban - The Pietermaritzburg Economic Justice & Dignity Group (PMBEJD) says food price inflation, which was at 13.9% in April, is the main driver behind the rampant rise of the inflation rate.
The inflation rate was 6.8% in April, a slight drop from 7.1% in March.
The PMBEJD was commenting as there was more grim news for consumers as the South African Reserve Bank (Sarb) hiked the interest rate by 50 basis points yesterday.
In announcing the hike, the Monetary Policy Committee noted that the rise in the country’s headline inflation rate had been shaped primarily by fuel, electricity and food price inflation. It said compared to the previous meeting, fuel and electricity price inflation was somewhat lower and food price inflation higher.
Mervyn Abrahams, PMBEJD programme co-ordinator, said global food prices were coming down but food prices remained high in South Africa.
“Food inflation currently stands at 13.9% for April and was 14% for March; it remains high. Food inflation contributes 2.4% to consumer inflation and even though we have noted a drop in global food prices, South African food prices remain high. We know that load shedding is impacting food production but we should be seeing some decreases in the food prices.”
Abrahams said the group had noted major increases year-on-year in the prices of carrots, onions, potatoes, tomatoes and bread.
He added that the hike in the interest rate had been expected as the inflation rate remained above the Sarb target of 3%-6%.
He added that the group wanted an investigation to be conducted into what was driving food price inflation.
“We believe the only way to bring down consumer inflation is to address food inflation. Interest rate hikes won’t bring down inflation as it will make farmers who are having to invest in solar power because of the load shedding pay more for loans and in turn they will pass the costs on to the consumer.”
Professor Irrshad Kaseeram of the University of Zululand’s economics department said that over the past four years, a basket of basic food items had increased by 60%, yet income in real terms (adjusted for inflation) may have increased at most by 2%.
“Covid induced inflation, the price of fuel due to the Ukrainian war, the exchange rate depreciation and the high electricity charges are the main reasons for the rise in food price inflation.”
Professor Bonke Dumisa, an independent economic analyst, said that interest rate hikes were impacting food prices.
“Unfortunately, when interest rates go up the cost of doing business goes up and we find that those costs are in turn passed on to the consumer.
“We also have to bear in mind that farmers pay more for loans when there is an interest rate hike and that leads to higher food prices. The agricultural sector is already facing extra costs due to load shedding as they have to invest money in diesel and alternative energy sources.”
Dumisa said the number of farms in South Africa were declining.
“The demand for basic foods is the same or increasing in recent years but we have seen farms reducing. This does cause the price of food to rise. The other issue is some items are at export parity levels – where the price of vegetables are sold at the same price to the consumer as export prices, which is higher than what they will normally pay.”
Dr Sanele Gumede, an economics lecturer at the University of KwaZulu-Natal, said the government should be looking at ways to reduce the interest rate.
“There is no way that increasing the interest rate is going to help farmers, it will only make the price of food increase. We have also noted that due to the Russia and Ukraine conflict and the drought experienced in some countries in Europe that there has been an increase in demand for basic vegetables exported from South Africa. This means that we are seeing an increase in the price of vegetables due to the high demands for these basic foods.”
Clive Garrett, director of the Tomato Producers’ Organisation, said that tomato prices were dependent on various factors.
“We face the challenge of load shedding which is an input cost for us. We also incur costs due to the price of pesticides. The price of tomatoes is also affected by demand.”