While South Africa’s headline food and non-alcoholic beverage inflation accelerated to 3,1% in March from 2,9% in the previous month, the food category remained unchanged at 2,3% for the third consecutive month. This is on the back of lower meat prices, which continued to offset higher prices of grain-related products. However, it is a trend that is likely to change in the coming months as underlying data in the meat industry points to potential price increases in the near term. As a result, we still think South Africa’s food and non-alcoholic beverages price inflation could average about 5% year-on-year (y/y) in 2019.

Figures released this morning by Statistics South Africa show that food and non-alcoholic beverage inflation remained unchanged, at 3,1% y/y in March. But the products price inflation movements within the basket were mixed. The price inflation for most food product categories and non-alcoholic beverages lifted from the previous month, with the exception of meat, which remained in deflation, registering -1,1% in March.

The uptick in prices of most food products is reflective of the movements of agricultural commodity prices which have increased in the previous months due to expectations of reduced harvests. The most notable one is grains, where SAFEX yellow and white maize prices since January have consistently been over 20% higher than levels seen last year. But this has done little to lift the headline food price inflation, as it was offset by lower meat prices, which account for more than a third of the food inflation basket. The softer meat prices were partly underpinned by expectations of an increase in domestic meat supplies as the outbreak of foot-and-mouth disease at the beginning of this year led to a ban on South Africa’s beef in key export markets.

This might change in the coming months as South Africa is currently engaging with a number of countries to re-open export markets for beef in Africa and the Middle East. This means the impact of the foot-and-mouth disease might not be as severe as initially expected. Also worth noting is that South Africa’s cattle and sheep slaughtering activity is slowing, and this could add support to prices in the near term. Aside from red meat, poultry product prices could lift somewhat in the coming months, as there is likely to be an uptick in import tariffs. In terms of pork, prices could move sideways in the coming months, as there is no imminent threat from the recent African swine fever outbreak in the North West Province. Hence, we are of the view that the lower food inflation story could soon be over. – Wandile Sihlobo, Agbiz