Economists have warned that rising inflation rates, combined with a struggling economy, are putting a significant strain on South African consumers. In recent months, the country’s consumer price index has risen from 7% to 7.1%, with food inflation reaching 14.4%, the highest level since March 2009. The high cost of food, particularly dairy products like milk, eggs, and cheese, is driving up inflation and causing enormous hardship for low-income and working-class households.
Inflationary pressures are also causing concern among economists, as they may lead to an increase in core inflation and service inflation. The South African Reserve Bank is concerned about this trend and may respond with another rate hike. The country’s energy supply constraints are also making it difficult for inflation to stabilise.
However, there is some reason to be optimistic, as global food prices have begun to fall in recent months. According to the Agricultural Business Chamber (Agbiz), food inflation may moderate around May and into the second half of the year, owing to meat, grain-related products, vegetable oils, and fruit. Agbiz also believes that the impact of load shedding will have an impact on prices in the coming months, but that the mitigation measures that businesses are taking to improve power supplies, as well as the diesel rebate announced by the finance minister, will bear fruit later in the year.
Following adequate rainfall, South Africa had a favourable agricultural season, and if the rand/dollar exchange rate remains relatively strong, global agricultural commodity prices may soon become a reality in the country, albeit with a lag at the retail level.
The latest inflation data, however, shows no relief for consumers, as headline consumer price inflation increased 0.1 percentage point year on year to 7.1% in March 2023, up from 7.0% in February, according to Stats SA. The bread and cereals category saw the highest year-on-year increase of 20.3%, though this was lower than the 20.5% year-on-year increase recorded in February of this year. Unrelenting cost pressures from load shedding will continue to keep food prices sticky in the short term.
According to Debt Busters, a provider of debt solutions, the impact of food inflation on consumer budgets has been evident for some time. Consumers are spending a larger portion of their income on basic foodstuffs, which is taking precedence over debt repayment. Debt Busters expects the situation to worsen throughout the year, with more money spent on basic food items because they are necessities.
Overall, the cost of living crisis in South Africa appears to be worsening as winter approaches. With inflation still on the rise, consumers are struggling to keep up with the high cost of living. While there is some hope for food inflation to moderate in the coming months, the impact of load shedding on prices may continue to be a source of concern. For the time being, South African consumers are bracing themselves for a difficult year ahead.