Headline inflation accelerated faster to 5.6% year in year (y/y) in February from 5.3% in January 2024, which is slightly above market expectations of 5.5% y/y. The monthly headline inflation outcome was 1% m/m.
Senior Agricultural Economist at FNB Paul Makube says that however, food inflation decelerated faster to the lowest level in twenty-five months at 6% y/y in February from 7% y/y in January. Makube said except for the sugar, sweets and deserts which remained flat, the rest of the food subcategories decelerated with oils and fats extending their trend in negative territory.
“A combination of subdued demand conditions and supply pressure weighed heavily on prices which saw the fruit and vegetable inflation pulling back to single-digit levels. Consequently, fruit inflation decelerated to a 5-month low of 5.9% y/y and decreasing by 2.7% month on month (m/m),” explains Makube.
He said a drill-down into the fruit inflation data shows a sharp deceleration from an increase of 29.6% y/y in January to just 2.9% y/y in February for avocados at R19.6/kg (figure B). Bananas followed closely from an increase of 21.2% y/y in January to 4.8% y/y in February at R18.02/kg. Oranges remained sticky on the upside and increased further by 51% y/y in February from 43.7% y/y in January 2024.
In the vegetable category, Makube said prices decelerated faster by 3.2ppt from the previous month to 9.4% y/y and the monthly rate plunged by 1.7% m/m in February.
“Vegetable inflation has for the first time in eighteen months fallen back to single-digit level which indicates normalization of production despite the current weather challenge.
“Of the big-ticket vegetable items, potatoes posted the biggest deceleration of 11ppts after coming in 32.2% higher y/y and a monthly decrease of 4.2% m/m at R21.68/kg. Tomatoes decelerated by 10.8ppts from the previous month to R27.98/kg which is down 0.4% y/y and 1.4% m/m,” he said.
Regarding the PPI for fruit, Makube says their analyses showed a sharp rise in January while that for vegetables surprised on the downside.
“What can we expect for March from a fruit and vegetable perspective? Our analysis of price trends on domestic fresh produce markets so far for the three weeks of March 2024 shows monthly pressures across most commodities tracked.
“For fruit, bananas, and grapes both posted the biggest monthly gains of 29% m/m. However, bananas were still 8% below the 2023 levels while grapes were 16% higher y/y,” he said.
In the vegetable complex, onions posted the biggest monthly gains of 66.6% (+R2.69/kg) m/m but were still down by 15.4% (-R1.23/kg) y/y. They were followed closely by cabbages and tomatoes with monthly increases of 45.5% (+R1.16/kg) and 36.5% (+R3.42/kg). Annually, cabbages fell sharply 17.8% (-R0.81/kg) y/y while tomatoes remained sticky on the upside by 2.9% (+R0.36/kg) y/y.
He said vegetable inflation might still come in on the downside for March 2024 despite an expected uptick in the week heading into the Easter weekend. Fruit prices on the other hand may rebound slightly due to the seasonal upswing in demand.
The improved rainfall outlook bodes well for dryland crop recovery in the near term.
“The recent forecasts call for showers across most production areas which bodes well for dryland crop recovery and improving soil moisture levels as we head into autumn and the winter months (figures D1-D2). Further, the dissipation of the El Niño weather pattern and the return of La Nina later in 2024 bodes well for overall agriculture production.”
