While economic times will likely remain challenging in 2017, good news for consumers is that the alleviation of drought conditions will lead to a meaningful slowing in food price inflation, according to a recent report released by FNB.
The 4-year long drought was one of the biggest influences on the current Consumer Price Index (CPI), leading to a severe impact on agricultural production and employment, says Household and Property sector strategist, John Loos.
The drought – which is expected to be alleviated by mid-2017 – has spilled over into many other sectors besides agriculture, and as such has had a directly negative impact on the overall economy of South Africa.
While the agriculture sector’s recent weakness has had a generally negative impact on the overall economy’s growth rate (as well as on employment), it is arguably in the area of consumer prices where its impact is felt most – and why an end to the severe drought in 2017 would be most welcome.
Specifically, Loos highlighted that there has been a lessened strain on the CPI due to the Food and Non-Alcoholic Beverages component’s large weighting of 15.4% of the overall CPI. It thus has the ability to continue to significantly influence the overall CPI rate.
As at November 2016, the Food and Non-Alcoholic Beverages CPI inflation rate accounted for 1.8 of a percentage point of the overall CPI inflation rate of 6.6% in that month, making it the largest single contributor to the overall CPI inflation rate.
The contribution was so large due to that segment having by far the highest year-on-year inflation rate – to the tune of 11.6%- directly as a result of the drought conditions.
“Long term weather forecasting has proved very difficult, and drought conditions are far from over,” Loos said.
“But the hopeful end, or at least alleviation, of drought conditions in 2017 will be crucial to economic stability for reasons far beyond their direct impact on Agriculture production.”