Paul Makube
After steadying in May 2024, headline inflation resumed its deceleration and reached the 2024 low of 5.1% y/y in June. The monthly headline inflation outcome slowed to 0.1% m/m from 0.2% previously.
Food inflation decelerated further for the seventh consecutive month to reach the lowest level since February 2020 at 4.1% y/y in June 2024. Monthly food inflation nudged 0.3% m/m in June from 0.2% previously underpinned by increases in “bread and cereals,” meat, and “milk eggs and cheese” categories.
With the exception of the “bread and cereals” and meat, the rest of the food subcategories decelerated with oils and fats extending their trend in negative territory. Annual bread and cereals inflation jumped by 1.2 ppt from May to 5.2% y/y in June 2024, reflecting the pass through from the drought-induced price increases in the grain complex over the past few months.
This trend is likely to sustain in the short term, but the combination of the improved weather outlook with the La Nina weather pattern starting to take hold will limit further upside for grain prices in the season ahead and consequently the “bread and cereals” inflation outcomes.
Further, solid production has curtailed growth in international global grain and oilseed prices which continued to filter through to the domestic market. Meat surprised on the upside, edging 0.8% higher y/y in June from 0.7% in May, after rebounding for the first time in positive territory since February at 0.1% m/m.
Annual “oils and fats” inflation continued to trend in negative territory for the fourteenth consecutive month at -1.2% y/y in June with the monthly figure showing a decrease of 0.8% m/m. in contrast, the global vegetable oil prices have rebounded recently due to the combination of strong import demand for palm, soybean oil, and sunflower oils while the constrained supplies out of the Black Sea region added further upside pressure. Global vegetable oils inflation as measured by the United Nations’ Food and Agriculture
Organization (FAO) surged by 3.1% /m and a 23-month high of 13.8% y/y in June 2024. South Africa is a net importer of vegetable oils such as palm oil and the renewed uptrend on the international market may complicate the domestic “oils and fats” inflation outlook.
The fruit and vegetable categories surprised on the downside in June. Monthly fruit inflation decreased for the fifth consecutive month by 2.2% m/m and further decelerated 1.9ppts to 4.1% y/y in June 2024 on improved supplies. Vegetable inflation fell by 2.9% m/m and annually slowed by 2.9ppts to 4.7% y/y. However, latest developments with black frost decimating crops in Limpopo and adverse weather accompanied by torrential rains may constrain supplies and consequently result in a spike in vegetable prices in the next few months. It is however still early days as the assessment of the extent of the damage is ongoing.
Overall, the inflation outlook remains benign near term with fuel deflation more than offsetting utility and food cost pressures. Downside risks include subdued global inflation, a stable rand and international crude oil prices. Nonetheless, the unabating geopolitical tensions with their unintended consequence of raising global logistics costs, as ships avoid troubled areas such as the Black Sea and the Suez Canal, continue to pose upside risks.
Paul Makube is senior Agricultural Economist, FNB Commercial. He writes in his personal capacity.
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