The hot sharp decline in meals inflation is clearly just right information for cash-strapped shoppers, however unhealthy information for the agriculture sector.
The Bureau for Meals and Agricultural Coverage (BFAP) mentioned in its just lately launched Meals Inflation Transient that even supposing meals inflation was once nonetheless top, its sharp decline in Would possibly from fresh months equipped the primary “cast indication” of a turnaround in top meals costs.
BFAP anticipated the downward development to persist over the approaching months, because of pressure on shopper budgets, top base results, the relative restoration within the worth of the rand over the last month, and the filtering thru of latest decrease manufacturer costs to retail stage.
“Except greens, manufacturer costs in South Africa are on a declining development. Those declines are beginning to achieve retail markets for some product and are [likely to continue filtering] during the worth chain within the coming months,” BFAP stated.
BFAP recognized load-shedding and the related price of different power resources as a significant price driving force around the worth chain, which may offset probably the most decline at retail stage. Every other depreciating cycle within the worth of the rand was once an extra danger.
Dawie Maree, head of agriculture knowledge at advertising and marketing at First Nationwide Financial institution, stated the drop in retail costs would put downward force on farm-gate and meals production costs, which might have a detrimental impact at the agriculture sector.
“The [sector[ is under severe financial pressure because of high input costs. It is true that fertiliser and fuel costs have come down, but electricity prices and the minimum wage have increased, with load-shedding adding additional costs onto production.”
He nevertheless granted that high retail prices were unsustainable, as pressure on consumer spending had negatively influenced the sales of various products.
Maree identified the interest rate as another factor that would affect the affordability of food prices. He said that the impact of the interest rate on agriculture, along with the exchange rate, load-shedding and the effects of El Niño, could already be seen in tractor sales.
According to the South African Agricultural Machinery Association, tractor sales declined by almost 13% from 752 in May 2022 to 655 in May 2023. There was also a year-on-year decrease, with total sales in May 2023 (3 125), being 5,5% down from May 2022 (3 306). Sales for the calendar year, too, were expected to be 10% to 15% lower than in 2022.
Maree said the high interest rate was also influencing planting decisions by making it more expensive to take on debt.
He did not expect the rates to come down within the year, but to start softening by the second half of next year.
According to Statistics South Africa, headline consumer inflation cooled for a second consecutive month in May to 6,3%, from 6,8% in April, making it the lowest since April 2022, when the rate was 5,9%. The annual rate for food and non-alcoholic beverages dropped sharply from 13,9% in April to 11,8% in May, close to inflation levels last observed in September 2022.
Most of the food and non-alcoholic beverages categories recorded lower annual inflation rates, with the exception of sugar, sweets and desserts, and cold beverages.
Vegetables recorded a lower year-on-year inflation rate than in April 2023, but the highest year-on-year inflation of all categories at 20,8%. Bread and cereal inflation was also lower year-on-year than in April 2023, but at 18,1% the second highest year-on-year among the categories.
According to BFAP, food inflation in South Africa was higher than any of the selected countries, save the EU, in May 2023. This is in line with observation from April 2023. These countries include China, with a food inflation rate of 1%, Brazil with a food inflation rate of 5,5%, the US with a food inflation rate of 6,7%, Zambia with a food inflation rate of 11,6%, Kenya with a food inflation rate of 11,8%, and the EU with a food inflation rate of 15%.
From April 2023 to May 2023, declining food inflation rates were observed for Brazil, the US, South Africa and the EU, with the fastest decline in year-on-year inflation in South Africa, followed by the US and the EU.