Food price shocker – South Africa’s middle class at risk of shrinking

Global food prices declined the most since 2008 after concerns over supplies of grains and vegetable oils eased as Ukraine moved toward restarting exports, Bloomberg reports.

A United Nations index of world food costs plunged almost 9% in July. The index fell to the lowest since January, before Russia’s blockade of ports in Ukraine – a major food exporter – pushed up food costs to a record, it said.

The UN index fell for a fourth month, offering some relief to consumers facing a deepening cost-of-living crisis that spans everything from energy to transport. Still, prices remain elevated, putting pressure on low-income households and worsening global hunger.

Food prices had already climbed during the pandemic as logistics snarl-ups caused problems and demand outstripped supply as the economy recovered. But now the start of harvests in the Northern Hemisphere and concerns about a looming recession are weighing on commodities.

For South Africa, a Household Affordability Index, compiled by the Pietermaritzburg Economic Justice and Dignity Group in July, highlighted the rising cost of food in the country.

The data showed that the average cost of a household food basket containing 44 essential items has increased by R611.44 over the past year – up 14.8% and well above headline inflation (CPI) recorded in July at 7.4%.

The minimum shortfall on food for a family is nearly 43% after securing transport and electricity, the lobby group noted. It said that food is prioritized fourth in the budget, after transport, electricity, and debt servicing.

Programme coordinator for the group Mervyn Abrahams, told SABC news that transport costs are increasing due to fuel hikes, as are electricity prices – up more than 9% in some areas – which has eroded the food budget.

Abrahams said that the rising cost of living is not only a burden on those living on the breadline, with middle-class South Africans also struggling.

This, he said, is due to increased costs of debt servicing, credit cards, bonds, and car repayments, with people having less cash available to spend on food.

“So, we see that food insecurity is also beginning to impact massively on what we generally call in South Africa, the middle class.

“And it is likely that if the current interest rates trajectory continues into the next year, that many households currently in the middle class will more than likely drop into the lower-income bracket.”

ANC president Cyril Ramaphosa told the political party’s policy conference delegates last week that the government must respond “urgently and assertively” to the challenges faced by citizens on a daily basis, including food prices.

“We have also noted with great concern the impact of the rising cost of living on South African families and have made a number of recommendations specifically on rising fuel and food prices. We have called on the government to act urgently to support consumers and businesses at this difficult time,” he said.

It will get worse

Annabel Bishop, chief economist at Investec Bank said in a note this week that consumer price inflation has risen rapidly for South Africa, from 5.9% y/y to 7.4% y/y -but still below June’s US CPI inflation of 9.1%.

“July’s figures are expected to see a halt in the severe rising pressure on inflation rates for both areas,” she said.

July’s CPI inflation rates are still likely to be high, with the US near 9.0% y/y, and South Africa close to 7.5% y/y, but not accelerating in the big jumps experienced in the second quarter, said Bishop.

Food price inflation at the commodity level is also starting to turn lower than in previous months, and this is likely to feed through into more modest PPI inflation figures by the end of the third quarter, and so into more modest CPI inflation over the fourth quarter for South Africa, the economist said.

International oil and petroleum products prices have dropped from mid-June, and another petrol price cut is building for South Africa in September, of around R3.00/litre, after the cut announced for August, said Bishop.

“South Africa is still expected to see CPI move towards 8.0% y/y in Q3.22, from 7.4% y/y in June, but at a slower pace of acceleration than in Q2.22, while Q4.22 will likely see a moderation, towards 7.0% y/y, and over the course of Q1.23 to below 7.0% y/y.”

Read: Massive food price increases in South Africa – here’s what you’re paying more for