Food price relief coming for South Africa
Despite some inflation risks and a weak start for the rand in 2024, inflation is forecasted to continue its decline – and this includes food price inflation in South Africa.
This is according to Annabel Bishop, Investec’s Chief Economist, who noted inflation is set to ease further on lower food inflation this year as a whole.
After dropping to 5.1% year-on-year in December, it is expected that the inflation rate for January 2024 will temporarily rise again to around 5.5% year-on-year as inflation outcomes remain unpredictable.
However, the disinflation of food prices is expected to ease the pressure on the annual inflation rate.
Food price inflation in South Africa eased to 8.5% year-on-year in December from 9.0% in November, while international food prices dropped by 3.3% month-on-month in January.
International commodities prices are US dollar-based, and so the US dollar exchange rate with the rand has a key effect on imported commodities such as oil and petroleum, as well as influencing the price of agricultural goods in South Africa.
Global food prices experienced a significant decrease during the month, but the rand weakened by 0.9% against the US dollar.
This may slightly impact moderating the decrease in food prices, but it won’t affect most of it. Global food prices are expected to continue to decline annually throughout the year.
South Africa’s food price inflation is expected to decrease further, reaching about 7.0% y/y in January from 8.5% y/y due to global food prices dropping this month.
Wheat, maize, and soybean prices on the international front have declined this month compared to December, as good harvests and an anticipated decrease in demand have affected global prices.
The abundant supply of wheat in the Black Sea region has also caused a decline in prices.
Additionally, the outlook for maize production in South Africa is very positive and could bring down maise price inflation in 2024, provided a good harvest is realised.
It is expected that South Africa will continue to export more maise than it imports, which would positively impact prices and help lower food price inflation as the inflation rate of maise prices goes down.
As global demand weakens, food price inflation is expected to weaken in South Africa, too, meaning the overall inflation rate will also moderate, while concerns over El Nino are fading away.
According to the South African Reserve Bank (SARB), local fuel price inflation is expected to be low, averaging below 1% in 2024. Food price inflation is revised slightly higher for 2024, to 5.7%, but remains broadly unchanged over the forecast period.
Core inflation was 4.9% in 2023. The core inflation forecast for 2024 and 2025 is little changed at 4.6%, and 4.5% in 2026.
Services inflation in 2023 was 4.2%. The forecast for 2024 services price inflation remains unchanged at 4.8%.
However, SARB governor Lesetja Kganyago noted that the risks to the inflation outlook remain on the upside – as food inflation still remains sensitive, while the power, logistics, and infrastructure crises are still ongoing.
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