Stronger rand could bring back much needed Christmas cheer

STRUGGLING South Africans could be set for a better Christmas should the rand, which reached its strongest level in 10 months, continues strengthening on improved global risk appetite.

The rise in food prices is expected to ease because of falling input costs and expectations of better weather conditions as El Niño effects dissipate.

The South African Weather Service predicts improved rainfall from late spring and into summer.

Wandile Sihlobo, head of economic and agribusiness intelligence at the Agricultural Business Chamber, said fertiliser constituted about 35% of grain production costs and fuel accounted for 11% of the bill. “So you have the rand directly affecting almost half of your production costs.”

South Africa imports about 80% of its fertiliser consumption. Food prices are currently informed by higher prices from about three months ago.

Once that has filtered through, South Africans should start to see the benefit of a stronger rand by year’s end, Sihlobo said.

The currency reached a 10-month high of R13.20 against the greenback this week as investors sought emerging-market assets for better yields after both the UK and Japan central banks extended measures to stimulate their economies.

Falling fuel prices due to a decline in the oil price has also boosted positive expectations for inflation. This month, petrol prices fell by 99 cents a litre.

Developments are “very positive for our inflation forecast”, Dawie Maree, head of information and marketing at FNB Business Agriculture, said. “We will see the peak in food prices and food-price inflation earlier than what we expected a couple of months ago.”

Expectations previously were that food inflation would peak at 12% in December.

“Personally, I think we might see a peak in September already given the strengthening of the rand, and given the decline in international food prices as well.”

White maize, the country’s staple food, has dropped 23% from its March high. Yellow maize is some 20% off its May high.

The UN’s Food and Agriculture Organisation Index, which measures monthly changes in international prices of a basket of food commodities, registered a drop of 1.3 points in June month on month and a 1.4% decline year on year. The decline followed five consecutive monthly increases.

Food retailers, although declining to speculate about food prices, said they aimed to keep prices to a minimum.

Pick n Pay spokesman David North said, “A stronger rand can help in the fight against inflation, reducing the cost of imported goods and inputs such as some animal feeds.”

Shoprite said it was not in a position to speculate about future food prices but said that on a monthly measurement of 81 000 product lines, its internal food inflation averaged just 3.5% during the past year.

Reserve Bank governor Lesetja Kganyago this week said the surprise strength in the rand had surpassed the bank’s assumptions and was positive for inflation.

Last month, the Reserve Bank cut its inflation expectation average for this year to 6% from 6.7% previously.

The bank’s targeted inflation range is between 3%-6%.