SA producer price inflation slows in January, but food product inflation picks up pace

The slowing of the overall Producer Price Index (PPI) read was welcome and economists expect producer prices to brake further this year. 

“Producer price index inflation eased further in January 2023, driven by a broad deceleration in prices ... After averaging 14.4% in 2022, we forecast PPI inflation to average 7.4% this year as price pressures dissipate gradually,” Jee-A van der Linde, Senior Economist at Oxford Economics Africa, said in a note on the data. 





Consumer inflation is also winding down, with CPI decelerating to 6.9% in January from 7.2% in December. That trend is also supposed to continue as oil prices come off the boil, global supply chains normalise, and as the South African Reserve Bank’s rate hiking cycle helps to anchor inflation expectations while putting a lid on demand. 

But food price inflation has bucked the easing trend even as global food prices have fallen from the record highs scaled last year in the wake of Russia’s invasion of Ukraine. 

Food producer inflation sped up to 14.6% in January from 13.6% in December, mirroring the consumer inflation trend on this front. Consumer food inflation accelerated in January to 13.8% from 12.7% in December. 

Read more in Daily Maverick: “SA’s rolling blackouts take their toll on retail sales, food inflation and business confidence”

Factors that explain this include the lag time between spot prices and retail prices. But South Africa's homegrown screw-ups have also kept food prices in a froth. 

“Although South Africa is a price-taker for most agricultural food commodities, challenges domestically specifically from persistent, heightened load shedding continue to weigh on production costs,” said Investec economist Lara Hodes. 

The impact of the surge in rolling blackouts on food prices has been well documented, from delays in chicken slaughter – which have chowed the margins of food producers such as Astral – to breakdowns in the cold chain to disruptions to irrigation when the crops need water.  

Read more in Daily Maverick: “The Finance Ghost: Eskom is leading the poultry industry to the slaughter”

Major retailers have also been burning diesel at an alarming rate to keep the lights on and the pay tills and fridge and freezer units running, but their trading statements say they have been absorbing those costs – for now. 

“To ease the impact of the electricity crisis on food prices, the refund on the Road Accident Fund levy for diesel used in the manufacturing process, such as for generators, will be extended to manufacturers of foodstuffs,” Finance Minister Enoch Godongwana said in his Budget speech this week – one of the measures that President Cyril Ramaphosa had hinted at in his Sona.