Food inflation has become a hot topic in recent months, with South Africa experiencing double-digit levels from mid-2022 to mid-2023. However, this is not a unique issue to South Africa, as it is a global phenomenon influenced by various factors. These include drought in South America, China’s high demand for grains and oilseeds, rising energy prices, and the ongoing conflict between Russia and Ukraine.
Fortunately, starting in March 2023, South Africa’s consumer food price inflation began to slow down, dropping from 14.4% to 8.0% by September 2023. This deceleration can be attributed to the decrease in prices of essential food items such as bread and cereals, meat, fish, and oils and fats.
However, in October 2023, this declining trend was disrupted, and consumer food inflation increased to 8.8%, up from 8% the previous month. The main contributors to this increase were milk, eggs, cheese, fruits, and vegetables. While these price hikes may seem concerning, I believe they will likely be temporary as they are a result of temporary supply constraints.
The avian flu has been a major issue affecting the egg supply, although it has improved since September and October. Efforts are being made in the poultry sector, such as importing fertilized eggs to rebuild the stock lost due to avian flu, importing table eggs for baking processes, and discussions on vaccinations to prevent the spread of the disease. With these interventions, I am hopeful that egg prices will normalize in the coming months. Additionally, eggs have a lower weight in the food inflation basket, so their impact on overall inflation may not be significant.
The supply of vegetables and fruits is also expected to recover in the coming months, alleviating current price pressures. Load-shedding has reduced, and farmers have invested in alternative energy sources, improving production conditions. Overall, I remain optimistic that South Africa’s consumer food price inflation will continue to moderate in 2024. Key drivers of this trend are expected to be grain-related products, fats, and oils.
Grain and oilseed prices at the farm level have been lower than the previous year due to improved global and domestic supplies. This, along with potential trade risks, has contributed to slowing grain-related products and fats and oils prices. It should be noted that these products have a higher weight in the food basket, indicating a favorable trend in food prices. Meat prices have also continued to decrease, although there may be a slight change during the festive season due to increased demand.
Looking ahead to 2024, another factor to consider is the El Nino forecast for the summer crop season. While it may have a mild impact, current soil moisture levels are satisfactory, and the weather forecast remains favorable for the year. Farmers are actively planting across the country, and it is anticipated that the area planted with summer grains and oilseeds will increase compared to the previous year.
Nevertheless, it’s important to note that the prices of these products can be influenced by global developments as South Africa is an open economy connected to world markets. Thus, monitoring global agricultural trends, geopolitics, and energy markets remains essential.
In conclusion, while South Africa has experienced significant food inflation, there are positive signs of moderation. Efforts to address supply constraints in the poultry sector and anticipated improvements in vegetable and fruit supplies, along with favorable global and domestic factors, suggest a more stable food price environment in 2024.