Durban - Economists and Agri SA said that a reduction in inflation to 4.7% in July which is the lowest in two years is welcome news, but there won’t be a drop in food prices just yet.
Jaco Minnaar, the president of Agri SA, said the drop in inflation had little impact on farmers except for a smaller increase in labour costs as salary increases were generally linked to consumer price inflation.
Minnaar added that the index that did have an impact on farmers/producers was the producer price index (PPI), which stood at 4.8% year-on-year for June 2023, down from 7.3% in May.
“PPI certainly slowed down, but it still means that products increased by 4.8% year-on-year. This will mainly have an effect on manufacturing/processing of foods, like dairy products, processed meat, bread, canned food, etc. Not so much on the farmers’ price.” Minnaar added that the rand-dollar exchange rate had the biggest impact on food prices.
“The exchange rate weakened 9.5% vs a year ago, directly translating into a 9.5% increase in prices. International prices of grains also play a very important role in grain prices, like maize, wheat, soy beans, sunflowers. What happens internationally multiplied by the exchange rate has by far the biggest impact on our grain prices.
“For vegetables, prices are mainly driven by supply and demand, and coming out of winter most vegetables supplies were quite limited, thus the high prices for most of the products.
“One would expect that as summer comes and there can be more vegetables produced, the prices might decline. Meat prices more or less stayed the same over the past year.”
FNB Economics Weekly stated that after nearly two years of running above 5%, headline consumer inflation fell to 4.7% in July.
“While this indicates that the rate at which prices are rising compared to last year is slowing, monthly pressures persist and inflation is broader, with more items rising relative to last year.”
Professor Irrshad Kaseeram, of the University of Zululand’s economics department, said the 4.7% year on-year inflation for July must be viewed with caution.
“Core inflation of 4.7% excludes food and energy price inflation because they are too volatile. In July food price inflation was at 9.9% where it eased slightly from June’s 11.1%. Hence food inflation is likely to remain high despite core inflation being lower due to high fuel prices and a depreciating exchange rate. Hence unfortunately there is no good news for consumers with regard to food price inflation.”
Professor Bonke Dumisa, an independent economic analyst, said it was welcome news that inflation was within the South African Reserve Bank target range of 3-6%.
“As it remains in that range it means that it is unlikely that there will be another hike in interest rates when they meet in September. Remember, we also have to consider there will most likely be a major increase in the petrol and diesel price in September, and this will impact inflation. I would expect that the interest rate would remain unchanged due to the inflation rate being below 5%.”
Dumisa added that food inflation remained high at over 9%.
“It’s unlikely that we will see major decreases in food prices. Unfortunately, the impact of load shedding and the rising cost of diesel have severely impacted retailers and the agriculture sector. This is a major reason we still see high food prices, and even though inflation has dropped we won’t be seeing lower food prices soon.”