Food price inflation: Data shows price acceleration

The recently released data by Statistics South Africa shows that consumer food price inflation accelerated to 14.4% in March 2023, from 14% in the previous month.

The food product prices that increased notably were milk, eggs and cheese; fruit; vegetables; and sugar, sweets and desserts.

Food price increases remain sticky

However, we are probably closer to the peak, and there should be moderation soon. I expect consumer food price increases to remain sticky at relatively higher levels for the coming month, which will likely be the peak.

There could be some moderation from about May into the year’s second half. The current relatively cheaper grain prices will filter through mainly in the year’s second half.

There is a lag of between three and five months between farm (agricultural commodity prices) and retail prices of some products.

Other product prices that could remain elevated in the near term are fruits and vegetables. The unfavourable weather conditions over the past few months have disrupted vegetable production.

Moreover, the area planted for some vegetables was lower this season than in the previous one, which also weighed on the harvest. We also saw reports of crop diseases in some vegetables, such as tomatoes, which added to wobbly vegetable prices.

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Vegetable product prices

This led to a pick-up in some vegetable product prices in recent months. But this will be a temporary blip and should soften in the second half of the year.

There is already an improvement in the supplies of certain vegetables, which should help curb the rising prices.

Moreover, the impact of load shedding may also influence prices for the next few months. The mitigating measures that businesses are making to improve power supplies, along with the diesel rebate announced by the finance minister, should bear fruit later in the year.

The Agro-Energy Fund to help farmers establish alternative energy sources is another welcome development that should bear fruit in the coming months.

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Positively, global agricultural commodity prices are softening. In April, the Food and Agriculture Organisation of the United Nations’ Global Food Price Index – a measure of the monthly change in international prices of a basket of agricultural commodities – was at 127.2 points, down from 20% in April last year.

This shows that there is an improvement in the affordability of various agricultural commodity prices since their peak in the month after Russia invaded Ukraine last February.

This decline has been observed in most commodity prices including cereals, dairy and vegetable oils.

Importantly, these are farm-level prices, although they are named “Food Price Index”, not retail prices. So the decline at the farm level will take time to show at the retail level.

In South Africa’s experience, this could be a lag of between three to five months, as I noted above. The exception in the global commodity moderation are sugar and meat prices, which are relatively up.

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Sugar price surge

The price surge in sugar reflects the concerns about the tight global supplies in the 2022/23 season. This is caused by the downward revisions to the sugar production forecasts for India and China, along with lower-than-earlier-expected outputs in Thailand and the European Union.

Meat prices

Moreover, the meat price index increase was underpinned by the firm demand in Asian countries for pork. The pork supply limitations in several leading exporters increased prices due to high production costs and animal health issues.

Additionally, the solid Asian demand extended to poultry meat, hence the price rebounded after nine months of continuous declines.

The supply limitations arising from widespread avian flu outbreaks in various regions also increased the price.

Still, the FAO Food Price Index is 20% lower than in April 2022, primarily driven by the softening prices of the cereals, dairy and vegetable oil price indices.

These price trends will likely overshadow the impact of the rising sugar and meat prices in the near to medium term and keep the headline global food price index at relatively lower levels compared with a year ago.

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South Africa is part of the global agricultural market so this anticipated price trend will likely be a reality in the domestic market.

South Africa’s maize, soya bean and sunflower seed prices are already down by 20% from levels we saw a year ago. In essence, this means that agricultural commodity prices will likely continue to soften from last year’s levels, although not to the extent that we will go back to pre-Covid levels.

Still, this will be sufficient to moderate consumer food price inflation.

Sihlobo is the chief economist of the Agricultural Business Chamber of South Africa (Agbiz) and the author of Finding Common Ground: Land, Equity and Agriculture.