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)
Other Economy News
Recent Research Reports
Steel 2015: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2015 report provides an overview of the key developments in the global steel industry and particularly of South Africa’s steel sector over the past year, including details of production and consumption, as well as the country's primary carbon...
Projects in Progress 2015 - First Edition (PDF Report)
In fact, this edition of Creamer Media’s Projects in Progress 2015 supplement tracks developments taking place under the Renewable Energy Independent Power Producer Procurement Programme, which has had four bidding rounds. It appears to remain a shining light on the...
Electricity 2015: A review of South Africa's electricity sector (PDF Report)
Creamer Media’s Electricity 2015 report provides an overview of State-owned power utility Eskom and independent power producers, as well as electricity planning, transmission, distribution and the theft thereof, besides other issues.
Construction 2015: A review of South Africa’s construction sector (PDF Report)
Creamer Media’s Construction 2015 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; the key participants in the sector; local construction demand; geographic diversification;...
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
This Week's Magazine
Mercedes-Benz will launch ten plug-in hybrid models by 2017, says the German automaker’s parent company, Daimler. Following the launch of the S 500 plug-in hybrid, March saw the introduction of the C 350 e, the second model to feature the drive-train concept. Under...
Energy Minister Tina Joemat-Pettersson's recent unveiling of something of a road map for an upscaled and accelerated deployment of independent power producer (IPP) capacity has been widely welcomed. Besides plans to accelerate and expand the hitherto successful...
South African Airways (SAA) acting CEO Nico Bezuidenhout has firmly denied reports that a stake in the airline was going to be sold to Air China. “Categorically, SAA is not in any talks with any airline to sell itself at the moment,” he stated at a media briefing at...
Russian State-owned nuclear group Rosatom has confirmed that it is in talks with Nigeria about the construction of nuclear power plants (NPPs) in that country, but has denied that any agreement has been signed. This follows a recent report in the Nigerian media that...
Gas products and services company Afrox has launched a pilot programme to deliver its range of Handigas liquefied petroleum gas (LPG) to domestic consumers to fill a gap in the market, thereby expanding its direct contact with end-users.