Bread and cereal prices are likely to remain high over the next three months

GLOBAL price dynamics and the rand’s weakness are likely to see bread and cereal prices inflate over the next three months, according to the Bureau for Food and Agricultural Policy (BFAP).

According to the BFAP’s Food Inflation report published yesterday, bread and cereal prices had increased by a substantial 17.8% over the past year as a result of the high global grain prices during June and early July.

The research is a collaboration between BFAP and Dr Marlene Louw from Absa Agribusiness, and based on Statistics South Africa CPI and food retail price data.

Research suggests that increases in commodity prices took between three to four months to manifest in retail prices.

“Although these prices eased towards the end of July, prices are now again at almost 75% of the maxima recorded in early July.

“This is the result of hot and dry conditions in large parts of the Northern hemisphere.

“Locally, this is exacerbated by a weakening exchange rate, with fears of a global economic slowdown, increased incidences of load shedding, and an increasing global interest rate cycle weighing in on the value of the rand,” it said.

Similarly, the price of oils and fats increased by 37.6%, largely driven by the same factors as grains, and it’s expected that inflation rates in these two categories would remain firm going into 2023.

According to the data, lower oil prices could, however, translate into a slight easing in manufacturing and distribution costs, while a slowdown in meat prices could further alleviate some of the inflationary pressures apparent over the past year.

The authors of the report said that this was likely to keep food inflation between 6% and 7% for the rest of the year.

The prices of food and non-alcoholic beverages increased by 11.3% year-on-year to August. As in previous months, the main contributors were bread and cereal inflation, followed by meat inflation.

BFAP said the red meat price increases were underpinned by low slaughter numbers for cattle specifically, persistently high feed prices combined with elevated disease risks and economic constraints faced by consumers, which had resulted in lower throughput in the red meat value chain.

Poultry prices also saw significant increases over the past year. High feed costs were causing cost-push pressures, but in addition, high global poultry prices, due in part to disease outbreaks in key production regions, combined with a weak exchange rate, had led to cost pressures in the chain to be passed through to consumers in South Africa.

“We expect these factors to remain at play as we approach the end of the year thus, prices are likely to remain high. Due to limited scope for consumers to absorb further price increases we could see the rate of meat price increases lose momentum, translating into lower inflation rates for meat towards the end of the year,” the authors said.

The Food and Agricultural Organisation Food Price Index was 7.9% higher in August compared to the comparative year.