Jan 28, 2011
The impact of higher food prices on South Africa’s inflation remains highly uncertainBack
© Reuse this
In fact, up for the sixth month in a row and fuelled by increases in these food commodity price indices, the FAO index was at it highest level, in nominal terms, since records began in 1990, topping the high of 213,5 in June 2008 – a period characterised by food riots in some countries. Potentially compounding matters was an associated poll by the agency, which showed that oil would rise to a higher average of over $86/bl this year, which could further spur food inflation.
But what is the likely impact on food prices in South Africa?
Agri South Africa (Agri SA) economist Dawie Maree says that it is likely that food price inflation will increase this year, since the prices of most of South Africa’s food products are derived from international prices.
Agri Africa member and former National Agricultural Marketing Council chairperson Professor Eckart Kassier nots that the country has moved from being a net exporter to a net importer of food, which could make the country vulnerable. At the moment, the price sting has been lessened by the stronger rand, but the rebound in the currency has also hurt farmers and their exports.
But local exports and imports and their prices will be affected by the international food commodity prices and food price indices, depending on the magnitude of the inter- national price increases. Imports will become more expensive, which could mean that more locally produced produce is sourced, to the benefit of local producers, Maree says.
He adds that export earnings might also increase as prices increase, although a strong rand would counteract the benefit. However, this is dependent on the economic recovery of South Africa’s trading partners, of which the European Union is the largest, he says.
During 2010, South African consumers were not significantly affected by the sharp rise in global commodity prices, perhaps mainly owing to the strength of the rand, says Nedbank economist Carmen Altenkirch.
“More recently, there has been a more notice- able increase in some food prices at consumer level but overall food inflation still remains very low. However, if global agricultural prices continue to rise, or even remain at their current levels, they will begin to have a more noticeable impact on domestic inflation, particularly if the rand weakens,” she adds.
Investec analyst Annabel Bishop has argued that interest rates would likely remain unchanged in 2011, with a slight possibility of one more cut in rates, at best. However, this is assuming that food and demand pressures, in general, remain subdued.
Bishop warns that the benign consumer price index outlook could be influenced by certain food price pressures that could occur in the next year owing to current poor weather conditions. “If the late rains and patchy weather conditions continue to negatively affect crops, there is likely to be greater than currently expected upward food price pressure in 2011, while the year’s economic demand is expected to pick up to 3,6% year-on-year, compared with the previous 2,8%,” she said.
Altenkirch agrees that a food price increase is likely to put some upward pressure on consumer inflation, but says that it is unlikely to cause the Reserve Bank much concern. As a result, even with a slight uptick in consumer inflation, Nedbank believes that interest rates will remain unchanged this year and well into next year.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Creamer Media Senior Deputy Editor
Other Sugar News
Updated 57 minutes ago The seasonally adjusted manufacturing Purchasing Managers’ Index, compiled by the Bureau for Economic Research (BER), ticked up by 0.6 index points to 51.4 in June. This brought the average for the second quarter to 49.2 index points, slightly below the average of...
Updated 1 hour 22 minutes ago The first leg of one of South Africa’s largest equity equivalent investment programmes (EEIP) aimed at bringing a research hub to the nation’s shores along with enterprise and deep skills development was officially implemented on Wednesday. The launch of an...
Updated 1 hour 51 minutes ago Bus operator AutoPax was unable to start its engines on its first day in Mamelodi amid protests from taxi operators in a move that left scores of commuters stranded across the sprawling township. Autopax buses took over Putco routes after the latter’s decision not to...
Recent Research Reports
This Week's Magazine
JSE-listed Afrimat will make a cash offer to acquire the entire remaining issued share capital of subsidiary Infrasors that it does not already own.
Temporary power generation services provider Aggreko announced earlier this month that it had appointed Dr Sixtus Mulenga as nonexecutive chairperson of Aggreko Zambia, a move it believed was integral to the ongoing expansion of its operations in Zambia and the rest...
Major global aircraft manufacturer Airbus Commercial Aircraft is maintaining a steady course. "I don't have any big news, good or bad," company President and CEO Fabrice Brégier told international aviation journalists in Toulouse, France, at the company’s recent...
Industrial tool manufacturer Bosch has increased the compatibility of many batteries in its range of blue industrial power tools and has released mobile-device applications (apps) for users of the tools, says Bosch South Africa training manager Peter du Bruyn. Many...
The new Nissan Navara has been launched onto the global market, but Nissan South Africa (NSA) will only know in August whether the local Rosslyn plant will assemble the one-ton pickup. The NSA plant currently produces the old NP300 Hardbody one-ton bakkie, as well as...