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Rising food prices push up August 2019 headline inflation

This was somewhat higher than expected 4.2% that was predicted by Bloomberg polled economists for this period. The rise in headline inflation in August 2019 was on the back of rising food prices.

Rising food prices push up August 2019 headline inflation

Annual consumer price inflation (CPI) rose more than expected by 0.3 percentage point to 4.3% year-on-year (y/y) in August 2019, from 4.0% in July 2019. This was somewhat higher than expected 4.2% that was predicted by Bloomberg polled economists for this period. The rise in headline inflation in August 2019 was on the back of rising food prices.

Source: Author, compiled from Stats SA data

Annual food inflation (excluding non-alcoholic beverages) accelerated by 3.8% in August 2019, from 3.0% in July 2019. This is the highest level since February 2018 when food inflation was at 4.0%. The high level of food inflation in August 2019 in turn caused the inflation rate for alcoholic beverages to rise to 6.5%, from 6.0% in July 2019.

The recent upward movement in food inflation does not come as a surprise. For several months food inflation was anticipated to rise on the back of the normalisation of supply and demand conditions in the food sector following the end of drought conditions, especially in the north-eastern regions of the country, a few years ago and more recently in the Western Cape.

Inflation of almost all food products (except for fruits and vegetables) rose in August 2019, with the bread and cereals food category been among the biggest drivers of accelerating food inflation during this period. Bread and cereals inflation accelerated by 8.6% in August 2019, the highest annual inflation reading for this food product category since February 2017 when the rate was 12.8% due to drought during that period. Drought conditions during the planting period in the summer grain areas, mainly North West and Free State, caused staple food commodity prices such as maize to rise quite strongly over the past few months.

Oil-based food products inflation also accelerated during the period under review. Annual inflation for oils and fats rose to 4.4% in August 2019, from 2.9% in the previous month.

As was expected, meat inflation rose from 0.2% in July 2019 to 0.7% in August 2019. Meat inflation has been accelerating over the past few months on the back of shortage of meat supplies brought about by rebuilding of herds in the wake of improved grazing conditions.

There were also significant inflation increases in a number of other food categories. The inflation rate for fish rose from 6.4% in July 2019 to 7.5% in August 2019. Milk, eggs and cheese inflation went up from 1.6% in July 2019 to 3.0% in August 2019. Sugar inflation increased to 10.1% during the period under review, from 8.7% in the previous month.

Food and non-alcoholic inflation (CPI perspective)

Source: Land Bank, compiled from Stats SA data

Inflation levels are a key factor the South African Reserve Bank Monetary Policy Committee (MPC) considers when it determines interest rates. The latest rise in inflation gives the MPC a pause for thought of reducing the repo rate tomorrow 19th September 2019 when the committee makes its announcement. Although the inflation uptick  to 4.3% in August 2019 remains at below the 4.5% mid-point of the Reserve Bank’s target range of between 3% and 6%, the MPC is likely to consider the surge in oil prices following a drone strike on Saudi Arabian oil facilities as this could add upward pressure on price growth in the coming months. As such, it is believed that an interest rate cut is unlikely at this stage.

Tebogo Mashabela is an Agricultural Economist by profession with two master’s degrees, Master of Science (MSc) Agricultural Economics and Master of Business Administration (MBA).

Rising food prices push up August 2019 headline inflation
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