PRICE WATCH: SA July food inflation hits 16-year low, slowing CPI trajectory

South African food inflation slowed to a new 16-year low of 0.6% on an annual basis in July, a clear indication that the burden on consumers for a vital expenditure item is easing against the backdrop of a sour economy scarred by rising unemployment and slowing growth.

The benign read on the food front was a key reason behind the cooling of overall consumer inflation to 4.3% in July from 5.0% in June, a trend that vindicates the South African Reserve Bank’s decision to hold interest rates steady at its previous meeting on the matter.

Food inflation in recent years has been a cause for concern, especially for poor households who have to dish out much of their limited income to feed themselves. But a range of factors, including South Africa’s bumper maize and other grain crops from last season and falling global prices, have combined to subdue this blight on the social and economic landscape.

That goes against the grain of public perceptions, which is partly explained by an unemployment rate of 33.6% and relatively high inflation for other goods and services, which chows the income that is available for food.

But the bottom line is that food inflation is at its lowest level since October 2010, when it was 0.5%. And that is good news which should help to contain second-round inflation effects such as wage demands and inflation expectations.

Stats SA has 144 food and beverage items in its consumer price index (CPI) basket. Several are now in deflationary territory, led by beetroot, which saw its price in July fall by more than 23% on an annual basis. The price of seasonal fruit such as soft citrus declined more than 22%, which points to another excellent citrus crop.

On a monthly basis, the price of maize meal – the caloric staple for lower-income households – declined 3.1% in July from June. That is a big deal, which reflects South Africa’s record maize harvest.

But there are storm clouds on the horizon as a rapidly intensifying El Niño threatens drought this summer and fertiliser prices soar in the face of the Iran War and the stuff-up in the Strait of Hormuz.

More broadly, the decline in the overall CPI number to 4.3% was lower than economists had expected – also good news. But the flip side is that this may be a reflection of the dour state of the economy, which may be contracting and suppressing demand.

Another data set released on Wednesday showed retail trade sales grew a paltry 1.6% in June, from 2.2% in May and declined 0.6% on a monthly basis.

Inflation is expected to pick up pace again, with mixed fuel price adjustments in August and a worrying outlook for the pumps in September.

“We expect inflation to rise over the coming months,” said Jee-A van der Linde, senior economist at Oxford Economics Africa.

It’s all food for thought for the Sarb at its next scheduled Monetary Policy Committee (MPC) meeting in September. After holding rates steady in July, it may feel it’s time to pull the trigger again. DM