Downgrade Will Cause Increase In Staple Food Prices

The ongoing debate on the effects of the recent downgrade of South Africa’s credit score to sub-investment grade has been largely dominated by the middleclasses and the wealthy rather than the poor.

- Wandile Sihlobo

This is unfortunate, since the indigent will be the ones hardest hit by higher food prices and exorbitant lending rates.

STAPLE FOOD PRICES AND THE EXCHANGE RATE

One of the direct effects of the downgrade is the depreciation of the rand, which will have a negative effect on the 15 million South Africans that rely heavily on staple foods such as grains for their daily meals.

While the implications of the weaker rand are manifold, it will have a significant impact on these staple food prices.

•  A working example

Let’s consider the correlation between the prices of imported grain and the exchange rate:

When the rand is weak, the price of imported grains typically increases.