South Africa’s consumer inflation came in at 4,1% for September and has remained within the South African Reserve Bank’s target range of 3 to 6% for the 30th consecutive month.

The food sub-component also decelerated to 3,7% from August’s 3,8%. This was driven by the disinflation in the bread and cereals (8,5%), milk, eggs and cheese (2,1%), oil and fats (4,1%), and sugar (5,2%) categories year-on-year (y/y).

Maize harvest better than expected

Although the fruit and meat categories were slightly higher at 5% and 1,1% y/y, the monthly trend shows a slowdown, with fruit in deceleration for the sixth consecutive month.

As expected, bread and cereal inflation declined as the harvest outlook turned positive after an early year scare due to poor rain and reduced planting. This saw maize prices edging closer to R3 000/ton prior to the harvest, before falling by nearly R116 and R200 per ton, respectively, to the current level of R2 884/ton for white maize and R2 796/ton for yellow maize.

Although falling by 11% y/y, the 2018/19 maize harvest was better than expected at just over 11 million tons. Together with carryover stock, this ensures enough supplies for the year. The wheat season also started with a bang, with good rain improving crop prospects, lifting production and limiting further upside for prices.

Imports to offset the impact of limited rainfall

The weather, however, turned negative as the season progressed, but the huge global supply outlook and the fact that South Africa is a net importer will somewhat offset the impact of contraction in output.

The focus now turns to the 2019/20 crop season. The weather has become a critical factor in price direction, with the wobbly start to the season already providing upside support. This might upset the inflation outlook, which has been relatively tame in the past few months.

An increase in meat market prices

In the meat market, some increases in prices were seen, particularly in pork. This was due to the African swine fever (ASF) induced culling in Asia, which raised import demand.

Nonetheless, the subdued consumer disposable income helps limit further gains in the meat complex with inflation up 1,1% y/y. Seasonal demand trends will, however, help lift prices in the medium term.

In conclusion

Looking ahead, the recent long-range forecasts call for some rain during the summer of the 2019/20 crop season. The limited rain received to date is cause for concern as it might prohibit farmers from planting in time, or to reduce the planted area.

This, together with the strength/weakness of the rand, will influence grain prices in the short to medium term. – Paul Makube, senior agricultural economist at FNB Agri-Business