South Africa’s Consumer Price Index (CPI) for October, excluding mortgage costs, is 0,6% higher at 7,3% year-on-year compared with September’s 6,7%. With the CPI for food at a record increase of 12,3% year-on year, food is emerging as a strong driver of inflation – a major concern for the finance ministry and the Reserve Bank, which targets a 6% inflation rate.
F inance minister Trevor Manuel blames global warming for the sharp increase in food prices.
Briefing the media at the end of the ninth G-20 annual meeting recently, he attributed global food price increases partly to the conversion of crops into biofuel, but mainly to global climate change. “There is very significant climate change, certainly in parts of the wheat producing regions of Australia, for instance,” he says. “So corn prices and wheat prices have driven a phenomenal change, and I think it has cut across all food production.” While Manuel may be onto something when it comes to an increased demand for alternative fuel, climatologists say climate change has become a buzzword often abused by politicians and organisations either as an excuse for poor agricultural policies or to drive a specific agenda. “We cannot say that it is warmer now than it was 20 years ago, but with electronic measuring equipment we have more accurate temperature readings than we had 20 years ago,” explained climatologist Louis Botha.
E conomists cite increases in the annual cost of transport, housing excluding interest rates, household operations, medical care, education, fuel and power as other factors contributing to a higher CPI. T he National Agricultural Marketing Council (NAMC) says some of these factors also affect the production cost of food, forcing up the Producer Price Index. he NAMC’s quarterly report on food price trends for October 2006 until 2007 paints an even bleaker picture of food inflation than Statistics SA’s CPI. The price-per-package monitoring system has been replaced by a cost-per-unit system (giving the price in rand per kilogram instead of per packet of average size), and urban food items monitored reflect a 16,26% price increase since October 2006, 3,96% higher than the figure. The most significant increases were the prices of cooking oil, dairy products, potatoes, onions, tomatoes and cabbage. If food is removed from the equation, the for the third quarter would only be 6,6%. he SA situation reflects global food market trends, says the report. But unlike minister Manuel, the NAMC says the upsurge in the price of non-energy foodstuffs can be attributed to supply and demand. concurs with the UN’s LINK Global Outlook, which also cites “robust global demand by emerging economies” as the reason for high food prices worldwide. The LINK outlook also says higher input costs affect food prices. But the Food and Agriculture Organisation (FAO) says in its outlook for 2007 to 2016 that food price increases will remain firm as a result of an increased demand for feedstock for biofuel production. Both the LINK and FAO outlooks expect inflation to decrease in developed countries in 2008, but predict a continuing increase in developing countries such as SA. his is certainly not good news for Reserve Bank governor Tito Mboweni, who is a staunch believer in inflation-targeting through increasing the lending rate.
But the more South Africans pay for food, the less disposable cash they will have for other amenities, making them more reliant on credit to maintain a certain lifestyle. n a strongly worded press statement TAU SA said three items that contribute 47% to the administered price inflation are land tax, water and electricity. All three are directly managed by government through legislation. TAU SA says this may now bring government into conflict with the constitution, which states very clearly that taxes may not be levied if the government’s monetary policy is negatively influenced as a result. – Jasper Raats