The FAO World Meals Value Index (FFPI), which measures the month-to-month change within the worldwide costs of a basket of meals commodities, averaged 129.8 factors in February 2023, down 0.6% from January and persevering with its downward pattern for an eleventh consecutive month. With the newest decline, the index has fallen 18.7% from its peak in March 2022.
The marginal decline of the FFPI in February mirrored important drops within the worth indices of vegetable oils and dairy, along with fractionally decrease cereals and meat indices, greater than offsetting a steep rise within the sugar worth index.
Determine 1: FAO’s World Meals Value Index
In an encouraging improvement for world meals inflation, the Initiative on the Secure Transportation of Grain and Foodstuffs from Ukrainian ports, also referred to as the Black Sea Grain Initiative, has been prolonged for one more 120 days and might be reviewed once more after this era. This initiative began in July 2022 and is an settlement between Russia and Ukraine made with Türkiye and the United Nations (UN) to permit grain motion from Ukraine to world markets with out Ukraine being attacked by the Russian navy. Because the deal was first signed into fruition, Ukraine has exported about 25 million tonnes of grains and vegetable oils – one of many major drivers for the decline in world meals costs over the previous 11 months.
Total, Ukraine stays a important participant within the world wheat market, though its manufacturing has declined considerably as a result of battle. Regardless of the sharp decline in Ukraine’s wheat exports, the newest Worldwide Grains Council (ICG) forecast for 2022/2023 world wheat exports is at 199 million tonnes – up 1% from the earlier season. As well as, Australia, Canada, the EU, Kazakhstan and Russia are anticipated to spice up the obtainable provides for the world market.
This enchancment in export provides means world wheat costs might proceed to average over the medium time period. Nonetheless, the Black Sea geopolitical tone and battle stay important dangers to the worldwide grain and vegetable oil marketplace for the foreseeable future. Extending the grain deal is a welcome improvement, however the interval is comparatively brief. An extended time-frame is way preferable for market gamers to clear uncertainty surrounding shipments for extra extended durations. Nonetheless, the deal extension advantages all wheat- and vegetable-importing nations (significantly South Africa) as world wheat costs proceed to melt.
Domestically, headline inflation rose barely by 0.1-pp to 7.0% yr on yr in February, greater than the consensus forecast of a 6.9% yr on yr enhance. Notably, core CPI inflation jumped extra markedly by 0.3-pp to five.2% yr on yr. Nevertheless, the rise in core inflation was primarily pushed by medical insurance prices, which have began to regulate greater after two years of unusually low will increase. Due to this fact, we don’t see the rise in core CPI as reflective of a broad-based underlying worth strain that might be sustained.
Whereas upside dangers stay, we anticipate this core CPI print of 5.2% to be the height, and we forecast that headline CPI inflation will resume its broad easing pattern from March 2023. Nonetheless, the important threat issue for this outlook stays meals worth inflation, which has elevated persistently for a lot of the previous yr, reaching 13.6% yr on yr in February. The dominant contributors had been meat and fish (+3.9% yr on yr), bread and cereals (+3.8% yr on yr), dairy and eggs (+1.8% yr on yr), and greens (+1.2% yr on yr).
Determine 2: SA inflation, January 2019 thus far (yr on yr, % change)
In comparison with different key markets, SA’s February meals inflation was decrease than within the EU however greater than in Kenya, Zambia, Brazil, the US and China. In comparison with January 2023, reducing meals inflation charges have been noticed for China, the US and Brazil, whereas growing meals inflation charges have been skilled in Kenya, the EU and SA.
Determine 3: Worldwide meals inflation comparability
Many components which have pushed native meals inflation over the previous yr aren’t distinctive to SA. These embody excessive agricultural commodity costs globally, in addition to elevated vitality prices, which affect the costs of inputs resembling gas fertiliser. Whereas a lot of these world components are easing, as evidenced within the continued decline within the FAO’s Meals Value Index, the depreciation in SA’s change charge has offset a lot of the worldwide decline. On the identical time, persistently excessive ranges of load shedding added important prices throughout the agriculture and meals worth chain. Notably, the sharp change charge depreciation has prevented a lot of the noticed decline in world costs from transferring to SA.
Trying forward, naturally, any important appreciation within the coming months would have the other impact – easing home costs for agricultural commodities. Nevertheless, this impact might reduce if load shedding is maintained at decrease ranges. Sadly, the consensus is that load shedding will probably stay at comparatively excessive ranges for the foreseeable future, which can, in flip, be a key think about maintaining native meals costs greater for longer.
For March 2023, the excessive base results of March 2022 are prone to trigger meals inflation to average considerably. Nonetheless, a rise in administered costs, resembling electrical energy, as a consequence of be carried out in April, might additional add price pressures that, in flip, are prone to hold meals costs elevated over the approaching months.
Casey Delport is an funding analyst – Mounted Earnings at Anchor Capital.