Recent good rains may take pressure off domestic crop prices

THE PRODUCER Price Inflation (PPI) remained unchanged at an 8-month high in December due to rising food prices, pushing the struggling economy to a long recovery.

Statistics South Africa (StatsSA) said yesterday that the annual PPI for final manufacturing goods remained at 3 percent as in November. StatsSA said that food products, beverages and tobacco products rose 5.7 percent while transport equipment increased 7 percent year-on-year in

December. On a monthly basis, StatsSA said producer prices went up 0.2 percent, after being flat in the previous month.

Grain mill product prices have continued to rise, lifting to 16.5 percent from 16.1 percent and 13.2 percent in November and October respectively, driven by strong export demand and the effects of a previously weaker rand.

However, Agbiz has said that the upward swing we have seen in food prices may not necessarily persist as higher than usual rainfall has enhanced crop conditions and increased the prospects of a good harvest. Agbiz said that this in turn, would take some pressure off domestic crop prices. Investec’s Lara Hodes said the producer inflation could elevate this year, depending on the agricultural sector’s performance. “Indeed, Agbiz’s baseline forecast is for food price inflation to average around 5 percent year-on-year in 2021, although they stressed that they will review this projection as additional information about the impact of tropical cyclone Eloise on southern Africa’s agriculture becomes available,” Hodes said.

Investec expects South Africa’s industrial production and gross domestic product (GDP) to fall by close to -5 percent year-on-year in the fourth quarter of 2020.

The South African economy experienced deep scarring in 2020 due to the Covid-19 pandemic and associated lockdown restrictions, and as a consequence it will be a lengthy recovery.

The International Monetary Fund this week slashed South Africa’s economic growth forecast, saying the GDP will grow by 2.8 percent this year compared to the 3 percent forecast last year.

Moody’s yesterday warned that the weak economy, asset quality and profitability pressures had negatively affected South Africa’s banking system outlook.