Weaker Rand, Low Rainfall To Lead To Higher Food Prices

Despite inflation being at its lowest in years, the weaker rand-dollar exchange rate and the possible development of an El Niño event are likely to push food prices up into 2019.

- Karabo Takadi

Annual food inflation has stabilised in 2018 from high levels in previous years, and has maintained levels below 4,6% for the first half of the year. Annual consumer food price inflation for June 2018 was 3,1%, and remained unchanged compared with May 2018. During June 2016, annual food inflation was 11%, which declined to 7% in June 2017.

Improved weather conditions led to a recovery in agricultural output in 2017 and 2018, thereby offering relief to food cost (see graph). Moreover, as a result of the higher available grain crop, the intensive livestock sector benefitted from reduced feed costs.

Larger agricultural output also meant that South Africa imported fewer expensive commodities and processed food.

WEATHER CONDITIONS

At the end of June 2018, forecasts indicated a more than 50% probability of the occurrence of an El Niño event, starting in winter/spring 2018, and most probably lasting until autumn 2019. If this event materialises, there is an increased probability of spring and early summer rainfall over the summer rainfall region. There is, however, a significant increase in the probability for below-average rainfall and above-average temperatures for November 2018 to February 2019.