Food prices keep inflation on the boil

STUBBORNLY high food prices are keeping consumer inflation unexpectedly high, despite the fact that at the agricultural level food prices are falling.

Due to food price pressure at the consumer level, January inflation data disappointed on Wednesday at 8,1 per cent, after 21 economists surveyed by Bloomberg had forecast inflation at only 7,5 percent.
Statistics SA reported that the food component of the consumer price index (CPI) rose 16,1 per cent over 12 months and by two per cent in January.
Kevin Lings, an economist at Stanlib, said: ‘This is extremely unfortunate given that agricultural food prices are actually declining.’
In December 2008 food prices at an agricultural level fell 5,7 per cent year-on-year. The benefits of these lower prices are not passed on to consumers.
Danelee van Dyk, an economist at Standard Bank, said a 42 per cent depreciation in the rand against the dollar over 12 months was another reason food prices continued to mount at the consumer level.
The inflation figure for January 2009, the first to be based on a reweighted and rebased consumer basket, was down from 9,5 per cent in December 2008. It is the lowest since the 7,9 per cent recorded in October 2007.
But the figures are not directly comparable for technical reasons, among them the smaller weighting of high-inflation items such as food in the new basket, which led economists to expect the January decline to be bigger.
However, the figure is closer to the ceiling of the Reserve Bank’s 3-6 per cent target range.
CPI replaces CPIX (CPI minus mortgage costs) as the benchmark measure of inflation. CPIX breached the ceiling of the target range in April 2007 and peaked in August 2008 at 13,6 per cent. CPI peaked that month at 13,4 per cent. Inflation has fallen consistently since then.
Alcohol and tobacco contributed to the upward pressure last month, rising more than 10 per cent over 12 months. So did a new item, miscellaneous, which includes personal care, insurance, and financial and other services.
Nedbank said another reason the figure was higher than expected was that ‘more price surveys are now conducted in January than was previously the case. This was the main reason behind the larger-than-normal seasonal increases in the recreation and culture category as well as other services’.
The overall figure would have been even worse if not for a 20 per cent fall in petrol prices over 12 months and a fall of 18,8 per cent in Janauary, following a drop in the oil price.
Lings predicted yesterday that inflation would fall back within the target range in the second quarter of 2009. Jean Francois Mercier, an economist at Citi, predicted the third quarter. -Business Report