Figures released this morning by Statistics South Africa show that headline inflation has accelerated to 6.1% year-on-year (y/y) in September 2016 from 5.9% y/y in the previous month, with rentals for housing and owners’ equivalent rent being the key driver of this uptick.  However, food and non-alcoholic beverages inflation has remained unchanged from the previous month, at 11.3% y/y.

The food and non-alcoholic beverages basket consists of bread and cereals; meat; fish; milk, eggs and cheese; oils and fats; fruit; vegetables; sugar, sweets and deserts; non-alcoholic beverages and other foods. Although overall food and non-alcoholic beverages inflation has remained unchanged, there have been some price movements within the basket. Notably, increases have been recorded in bread and cereals; milk, eggs and cheese; fruit; sugar, sweets and deserts and other foods whereas meat; oils and fats; vegetables and fish decelerated (Chart 1).

The increase in bread and cereals inflation is still reflective of the effects of the 2015/16 drought, which has led to lower grain supplies and in turn higher prices (Chart 2). Additionally, the increase observed in eggs inflation is in line with increases in feed prices. The increase in milk and cheese inflation coincides with seasonal milk prices, which normally reach higher levels during winter and early spring season owing to lower domestic milk supplies. The increases in sugar, sweets and deserts inflation mirror the effects of the 2015/16 drought on sugar cane production.

Looking ahead, we believe that dairy inflation could decelerate towards the end of this year, when grazing fields start to recover on the back of summer rainfall. Over the past few months, meat prices have seen marginal increases due to large supplies on the back of higher slaughtering rates. However, we expect this trend to change in the near future, with meat being the key driver of food inflation throughout 2017.

Additionally, we expect bread and cereal inflation to remain elevated until mid-2017, when the new crops get harvested. Worth noting is that over the past few months, grain prices have maintained a downward trend due to the stronger ZAR/USD and favourable weather outlook for the new season (Chart 2).



Wandile Sihlobo,
Head: Agribusiness Research, Agbiz
Tel: +27 12 807 6686