Possible temporary price hike respite on the cards

September sees South Africans breathe a slight sigh of relief as fuel prices come down substantially.

It comes after months of steep inclines in the cost of living with rising inflation and an already weak economy battered by economic and global geopolitical forces, partly in consequence of the Russia-Ukraine war and a Covid hangover.

Oil price is stabilising

But there is hope, said economist Dawie Roodt, who believes that the worst may be behind us.

He says the oil price is likely to have topped out and a gradual lowering of crude prices will ease economic pressures brought about by high energy prices.

The Economist recently reported that global food prices are coming down, too.

It reports that while initial fears about food security rallied key grain and sunflower oil prices upward, the Russian invasion of Ukraine did not have the severe negative impact on grain exports from the two agricultural economies as expected.

There were no persistent shortages of grain or sunflower oil and mass starvation as a consequence did not happen.

Prices were chased northward by markets, driven by fear and sentiment.

In South Africa consumers were floored by a near doubling of sunflower oil prices over the past few months and bread prices climbed by as much as 25% in a single year.

Add to that the fuel price shocks and the recipe for personal finance disaster were set.

Also Read: 81% of South Africans cutting down on daily meals due to high food prices

Don’t expect prices to come down immediately

But according to the Economist report, food prices will be coming down as markets are less panicky and exports out of the Ukrainian port of Odessa have continued thanks to a UN-brokered deal.

Roodt said that while this may be good news, consumers should not expect prices to come down immediately.

He said that it takes a while for both increases and decreases in pricing to filter through the global economy. This includes a latent benefit of a lower fuel price.

Instead of prices coming down across the board, Roodt expects greater stability and a slower rate of price increases.

However, certain goods sensitive to price fluctuations, like maize, meat and wheat, may see on-the-shelf benefits to consumers.

Drought and weather-related complications

But danger may be waiting in the wings. Drought and other weather-related complications may impact food prices in the near future.

Nasty surprises may also be in store as Europe’s natural gas shortage and high fuel prices could continue to impact the global economy.

Economists have predicted a crushing recession on the continent.

Crop yields in key food-producing countries could also be severely impacted should further extended dry seasons prevail.

The exchange rate may also negate any food price benefit as the dollar has shown significant strength against other currencies.

The Rand has depreciated in value against the greenback and now trades at just over R 17 to one US dollar from around R 14,50 in May.

Roodt added that the repo rate may still go up by at least 75 basis points over the coming months as the Reserve Bank attempts to curb inflationary pressure.