Food inflation decelerating but there are upside risks for 2022

26th January 2022 By: Rebecca Campbell - Creamer Media Senior Deputy Editor

In its latest 'Food Inflation Brief', the Bureau for Food and Agricultural Policy (BFAP) has reported that food and non-alcoholic beverages price inflation came to 5.5% in December, in year-on-year terms. In month-on-month terms, the increase was 0.5%. For food alone, the year-on-year inflation in December was 5.9%. Food and non-alcoholic beverages prices together contributed one percentage point to December’s consumer price index headline inflation of 5.9%. (The previous BFAP 'Food Inflation Brief' had been published in November and had covered October, in which monthly food and non-alcoholic beverage inflation had come to 6.1%, in year-on-year terms.)

“The main contributors to the persistent food inflation remain oils and fats (20.8%), meat (8.6%) and dairy and eggs (5.3%),” noted the new report. However, inflation in the sector last year peaked in August, at 6.9%. In January 2021 the figure had been 5.4%.

Apart from oils and fats, the other food items which recorded inflation higher than 10% last month were (in the order given by BFAP) cheese, mutton/lamb (leg, stew), margarine, beef (sirloin, rump, offal, fillet), eggs (note: dairy was not mentioned in this list), fish (frozen hake, fish fingers), polony, and pork (chops, bacon). Food items which experienced inflation between 6% and 10% were (again in BFAP order) chicken (frozen but non-individually quick frozen [IQF] portions, fresh portions, IQF portions, whole fresh), mutton/lamb (loin chops), beef (mince, stewing, brisket), pasta and dried beans.

The price of the BFAP thrifty healthy food basket increased in December by R9.23, or 0.3%, in month-on-month terms and by R142.33, or 5%, in year-on-year terms. Assuming a household of two adults and two children, earning two minimum wages plus child grants and school feeding, the cost of the thrifty healthy food basket last month would have come to 30.1% of the family’s total income. (The BFAP thrifty healthy food basket is nutritionally balanced, with 26 food items from all food groups.)

South African food price inflation last month was higher than that recorded in China (which registered food deflation of 1.2% in December) and the European Union (which recorded food, alcohol and tobacco inflation of just over 3%). On the other hand, the South Africa figure was lower than that in the US (6.3%), Brazil (7.9%), Kenya (9.1%) and Zambia (19.9%).

“We expect that food inflation could moderate somewhat over the coming months as a result of high base effects associated with high price levels during 2021,” stated BFAP. “There are however many emerging factors that present upside risk to this view.” Climatic conditions, in particularly South America, would likely be the main price driver for grains and oilseeds: dry conditions would drive prices up. Then there is the dollar/rand exchange rate, with the probability of US interest rate increases (to counter inflation) putting the South African currency under pressure, “with some analysts expecting levels close to R17.00”. Energy prices – a key input cost into agriculture – were also rising, and could reach $90/bl by the third quarter of this year.