The recent food and non-alcoholic beverages inflation data suggest that we might have already reached the peak in food inflation and the coming months could show sideways to a downward trend. Data released this morning showed that South Africa’s food and non-alcoholic beverages inflation eased at 11.4% year-on-year (y/y) in January 2017 from 11.7% in December 2016. With non-alcoholic beverages aside, food inflation eased at 11.8% y/y in January 2017 from 12% y/y in December 2016[1].

Food and non-alcoholic beverages basket consist of bread & cereals; meat; fish; milk, eggs & cheese; oils & fats; fruit; vegetables; sugar, sweets & desserts; non-alcoholic beverages and other foods.

The overall deceleration was largely driven by bread & cereals; oils & fats; fruit; vegetables; other foods and non-alcoholic beverages which reached 17.0% y/y; 7.2% y/y; 11.2%; 4.7% y/y; 12.3% y/y and 9.2%, respectively (see Chart 1). The easing of bread & cereals inflation is in line with the decline in grain prices. White maize spot prices are currently at levels around R2 860 per tonne, which is 40% lower than the corresponding period last year. Wheat spot prices are at levels of R4 000 per tonne, which is a 13% annual decline (see Chart 2). The decline in oils & fats inflation mirrors the movement of sunflower seed prices which are currently at levels of R5 115 per tonne, down by 38% from the corresponding period last year. The decline in vegetables and fruits inflation was driven by harvest pressure.

Meanwhile, meat; fish; milk, eggs & cheese; sugar, sweets & desserts inflation accelerated to 8.9% y/y; 11.1% y/y; 11.1% y/y and 21.4% y/y, respectively (see Chart 1).

Looking ahead, we think food inflation may remain ‘sticky’ at these current ‘high’ levels over the next few months, with notable deceleration expected later in the year. This is partly on the back of lag effect on grain prices, as well as expected higher meat prices . The deceleration later in the year is due to expected recovery in grain production, with our maize production estimate at 11.9 million tonnes, a 53% annual increase.

[1] Overall headline inflation decelerated to 6.6% y/y in January 2017 from 6.8% y/y in December 2016.

[2] Worth noting is that the overall CPI for food and non-alcoholic beverages weighs 17.24 points (out of 100 index points) – in that basket, each of the food products is allocated its weight, with the largest being meat and bread & cereal, which make up 32% and 19%, respectively.

1702_CPI

ENQUIRIES:
Wandile Sihlobo (wandile@agbiz.co.za)

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