Bad news for consumers in South Africa

South Africans should expect inflation to remain elevated in the coming months, economists say, as higher diesel prices and input costs ripple through the entire producer supply chain.

The Bureau for Economic Research (BER)’s outlook for CPI sits around 7% year-on-year for the next several months, coming off the back of annual producer price inflation (PPI), which remains elevated.

PPI data for final manufactured goods slowed to 16.3% in September from 16.6% in August. However, the BER said this is well above the consensus forecast of 15.6%.

The economists added that the most significant contributors to the annual spike were coke and petroleum, which are up a considerable 34.2% year-on-year. This is followed by food products, beverages, and tobacco products – increasing by 12.1% year-on-year.

Of these indicators, a concern is that manufactured food products increased by a higher-than-expected 1.3% month-on-month in September after a 1% rise in August, the BER said, which suggests that there is more pressure to come on consumer food prices.

This concern over food prices has been exacerbated by the fact that the cost of diesel – a primary input for manufacturing, agriculture, and trucking – would increase to over R25 per litre as of 2 November 2022.

This means that food producers are likely to adjust prices to accommodate the rising cost of fuel – especially the agricultural industry, as fuel accounts for 13% of its input costs, said chief economist at the Agricultural Business Chamber of South Africa Wandile Sihlobo.

Additionally, The Bureau for Food and Agricultural Policy (BFAP) published its latest food inflation brief, warning South Africa of possible food price shocks in 2023 if local crop production is thrown off course by unforeseen events.

While the group noted that local prices had been kept lower than international markets due to local surplus production, it warned that under a scenario where South Africa does not produce surpluses of these crops, prices would rise to import parity – this would lead to price increases of at least 30%.

This is because inflationary trends are driven by global prices, the weak exchange rate and growing costs of logistics and processing of products, such as transport, electricity and wages – which are now starting to worsen.

The BER added that poultry producer Astral cautioned last week that sustained high feed costs would result in further selling price hikes for poultry, given that domestic maize prices have increased again in recent weeks.

Adding to the expected increases, restaurant group Famous Brands also said that high food and energy costs would see it raise menu prices at all its eateries.

The BER noted that while the view that South Africa’s headline CPI inflation peaked in July, the message from the latest PPI data, the fuel price hikes (51c/litre for petrol and a hefty R1.43 for diesel) this week, as well as recent corporate commentary, supports an outlook for CPI to remain sticky above 7% year-on-year for the next several months.

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