Recent Consumer Price Index data shows that food and non-alcoholic beverages inflation accelerated to 11.7% year-on-year (y/y) in December 2016 from 11.6% in November 2016[1] (with non-alcoholic beverages aside, food inflation increased to 12% y/y in December 2016 from 11.8% y/y in November 2016).

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 increase was largely driven by bread & cereals; meat; eggs & cheese and other foods which reached 17.4% y/y; 7.6% y/y; 10.5% and 12.7%, respectively (see Chart 1). The increase in the bread & cereals inflation is reflective of the effects of 2015/16 El Nino induced drought that led to lower maize supplies and subsequently higher maize prices. The increase in milk, eggs & cheese inflation was largely driven by lower domestic milk supplies. In November 2016, the South African Milk Processors’ Organisation Raw Milk Purchase Index fell by 3% from the previous month to 135.73 points – reflective of the decline in purchases. The increase in meat inflation coincides with seasonal demand during the festive season. Meanwhile, the decline in vegetables and fruits inflation was driven by harvest pressure.

Looking ahead – we foresee a slowing trend for most food products inflation in 2017 due to an expected recovery in crop production on the back of favourable weather conditions. However, this is with the exception of meat which is likely to maintain the upward trend over the coming months due to expected decline in slaughtering rate. With weather conditions improving, we suspect that farmers will soon start to rebuild their herds, which in turn will lead to a decline in slaughtering rate to the normal levels of 6 500 herd of cattle a week, from the current levels of (+) 15 000 herd of cattle (see Chart 2).



[1] Overall headline inflation accelerated to 6.8% y/y in December 2016 from 6.6% y/y in November 2016.
Worth noting is that the overall CPI for food and non-alcoholic beverages weighs 15.41 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 and cereal, which make up 30% and 23%, respectively. Therefore, an increase in meat inflation could potentially overshadow the decrease in other food products.

Wandile Sihlobo