food inflation

South Africa’s annual food and beverages inflation fell below 10% year-on-year (y/y) for the first time since March 2016. Given the current bearish trends in agricultural commodity prices, this declining path in food inflation is likely to prevail throughout the year.

Data showed that South Africa’s food and non-alcoholic beverages inflation eased at 9,9% y/y in February 2017, from 11,4% in January 2017. With non-alcoholic beverages aside, food inflation fell to 10,0% y/y in February 2017, from 11,8% y/y in January 2017.

The overall deceleration was largely driven by bread and cereals; fish; milk, eggs and cheese; oils and fats; vegetables; sugar, sweets and desserts; and other foods which reached 12,8% y/y, 10,7% y/y, 10,7% y/y, 4,9% y/y, -0,5% y/y, 16,9% y/y and 11,8% y/y, respectively (see Chart 1).

The easing of bread and cereals inflation mirrors the decline in grain prices (see Chart 2). White maize spot prices are currently at levels of R2 115 per ton, which is 56% lower than the corresponding period last year. Yellow maize spot prices are at levels of R2 183 per ton, which is 34% lower than the same period last year.

This deceleration is largely driven by excepted ample supplies of maize output this season. The wheat spot price is about R4 033 per ton, which is a 12% annual decline.

The decline in oils and fats inflation is in line with the movement of the sunflower seed spot price, which is currently at levels of R4 385 per ton, down by 44% from the corresponding period last year. Lastly, the vegetables and fruits inflation declined due to a recovery in production, as well as harvest pressure.

Meanwhile, meat as well as non-alcoholic beverages inflation accelerated to 9,9% y/y and 9,5% y/y, respectively (see Chart 1). Meat inflation was mainly driven by slowing slaughtering activity as farmers continue to restock their herds, following a drought season.

Looking ahead, with an expected ample grain supply this season, it is believed that headline food inflation will continue to decelerate throughout the year, and that will subsequently ease pressure on consumers. – Wandile Sihlobo, Agbiz

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