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Inflation at 16-year low yet prices of everyday foods are skyrocketing. Why?
Consumer inflation for 2020 was the lowest in 16 years and the second lowest in 51 years, according to figures released by Statistics South Africa on Wednesday.
The average annual inflation rate recorded for 2020 was also the lowest since 2004 at 3.3%.
Why then is food price inflation on the up?
An article published by BusinessTech cites a food basket study (Pietermaritzburg Economic Justice and Dignity Group) which shows an average food price hike of 17% last year.
Basic items, including fruit and veg, reflect a worrying increase.
Sugar beans went up by 68%, rice by over 67% and the price of bananas rose by more than 66%.
Bruce Whitfield gets some insight from Kevin Lings, Chief Economist at Stanlib Asset Management.
Lings says pressure in the system starts with agricultural prices.
Part of it is simply pressure coming through at an agricultural level... At the moment agricultural inflation is running at 14.2% year on year.
Kevin Lings, Chief Economist - Stanlib Asset Management
Farmers are able to put up prices and obviously they're passing those on to the food manufacturer. The food manufacturer's inflation sits at just over 7% which would suggest manufacturers are absorbing some of that but then passing a significant portion...
Kevin Lings, Chief economist - Stanlib Asset Management
At the retail level it's now up at 6.2% so this would suggest there's price pressure moving through the system... It has been building up systematically, certainly during the second half of last year, and it's been very evident during the last couple of months.
Kevin Lings, Chief economist - Stanlib Asset Management
Lings says considering farmers have not had a bad agricultural season this is not a typical pattern.
It's partly due, he explains, to international pressure and partly to a desire to recoup some margin at every level dating about two years back to severe drought conditions.
Some of our food prices do feed off what's happening to international prices because the export market is available to the agricultural sector. The farmer could say 'why should I sell my goods locally when I can get much more for them internationally'.
Kevin Lings, Chief economist - Stanlib Asset Management
While this pattern is likely to continue into the first part of 2021 says Lings, he doesn't believe agricultural inflation will remain as high as 14%.
Hear more about the probable outlook for the rest of 2021:
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