Inflation falls as record harvest expected
The benefits of higher agricultural output so far this year following good summer rainfall across the country has seen annual food producer price inflation decelerating to 4.7% y/y in June 2017, from 5.7% y/y in May 2017. The deceleration was largely in grain, sugar, dairy, starches, vegetable and fruit products, while meat and meat products accelerated due to on-going cattle herd restocking process resulting from the 2015-16 drought, as well as low base factors.
Wandile Sihlobo, economist at Agbiz, says the general deceleration in food producer inflation is due to the recovery in agricultural production. The total production of summer grains and oilseeds is estimated at 18.44 million tonnes, which is a 96% annual increase.
This has led to a widespread decline in agricultural commodity prices. White maize spot price currently trades at levels around R1 768 tonnes, which is 59% lower than the same period last year. Yellow maize spot price is trading at levels around R1 889 per tonne, which is 42% lower than the same period last year. Soybean spot price is at a level around R4 711 per tonne, which is a 31% annual decline. The decline in yellow maize and soybean prices will also benefit other sectors, such as the livestock and poultry.
Looking ahead, the large agricultural output will keep agricultural commodity prices under pressure over the shortto-medium term, essentially meaning that food inflation also could remain at relatively lower levels.¡