Increasing inflation sparks fear of recession

The ongoing increase in food prices has raised the spectre of inflation sending South Africa towards a recession.

The latest data from Statistics South Africa show that consumer food prices went up by 14,4% in March 2023, after rising by 14% in February.

Milk, eggs, cheese, fruit, vegetables, sugar, sweets and desserts are among products showing notable price increases.

Wandile Sihlobo, chief economist at Agbiz, said he expected consumer food price increases to remain at relatively higher levels for the coming month, after which they would peak. Consumers could expect some moderation from around May.

The overall economy, however, was in for a downturn as the year progressed, according to Prof Raymond Parsons, economist at North-West University’s Business School.

“The rise in the annual consumer price inflation (CPI) in March from

7% to 7,1% was contrary to market expectations, which had anticipated that the CPI might now have shown a modest decline to about 6,7%. Food prices are the main culprit.

“The rate of inflation, therefore, at 7,1%, remains well above the [South African Reserve Bank’s] target range of 3% to 6%. As several analysts had already expected a further rise of 25 basis points in interest rates at the next Monetary Policy Committee (MPC) in May on their expected lower rate of inflation, it is now even more likely the MPC will continue to take a hawkish line,” he said.

Parsons noted that higher borrowing costs were not the only factor influencing the economic and business outlook.

“There are whirlpools on both sides. Widespread concern and uncertainty have mounted about the further negative economic and business impact of loadshedding. This has raised the risk that the economy may now have moved into a technical recession, after facing two successive quarters of negative growth.”

Sihlobo said mitigating measures being made to improve power supplies, along with the diesel rebate announced by Finance Minister Enoch Godongwana, should bear fruits later in the year.

“Positively, global agricultural commodity prices are softening. If the rand/dollar exchange rate remains relatively strong, this will soon be a reality in South Africa, with a lag at the retail level,” Sihlobo said.

For April, consumers could expect to feel the effects of the tail-end of high grain prices of last year.

He said that, if sustained, the current relatively lower grain prices would filter down mainly in the year’s second half.

Other product prices that could remain elevated in the near term included fruits and vegetables. Red meat prices, which had started to soften, would continue to moderate in the coming months.

Sihlobo said South Africa’s consumer inflation food price outlook for the second half of the year was reasonably better and was likely to stabilise to between 7% and 8% year-on-year (from 9,5% in 2022).