South Africa

Inflation declines – but food prices hit new high

Lesetja Kganyago

South African food prices increased at the fastest pace in almost 14 years in January, when the state power company intensified rolling blackouts.

Annual food and non-alcoholic beverage inflation quickened to 13.4% from 12.4% in December, Pretoria-based Statistics South Africa said Wednesday in a statement on its website.

That’s the highest rate since April 2009, it said.

The increase in food prices came as state-owned Eskom imposed power cuts of as long as 12 hours a day — the most severe outages yet — for nine days in January.

Power cuts, known locally as load shedding, have been implemented for 108 straight days because of frequent breakdowns at Eskom’s plants.

The South African Reserve Bank last month raised its 2023 forecast for food-price inflation to 7.3% from 6.2%, with Governor Lesetja Kganyago warning that it could continue to surprise on the upside.

Poultry, egg, and agriculture-industry bodies have said the power cuts are adding to the costs of food production.

The headline consumer-price index rose 6.9% from a year earlier, compared with 7.2% in December.

Rising food prices mean it could take longer for inflation to approach 4.5% — the midpoint of the target range at which the monetary policy committee prefers to anchor expectations – and force the central bank to keep interest rates higher for longer.

Average inflation expectations for the year stand at 6.1%, the Bureau for Economic Research said in January.

Kganyago in January stressed the central bank “means business about price stability” and was reluctant to commit to pivoting away from policy tightening.

That’s even as the central bank moved closer to ending its interest-rate hiking cycle on Jan. 26, when it lifted borrowing costs by 25 basis points to 7.25% — the smallest increase in five meetings.

Forward-rate agreements, used to speculate on borrowing costs, show traders are pricing one more 25 basis-point increase in the current rate-hiking cycle.

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