South Africa’s headline inflation eased to 3.8% in September 2024, marking a 42-month low. For consumers, this dip offers slight relief as inflation continues to fall below the South African Reserve Bank’s (SARB) target midpoint of 4.5%. However, food inflation held steady at 4.1% year-on-year in September, despite monthly pressures driven by rising fruit and vegetable prices.

Headline Inflation Overview

South Africa’s inflation rate has been on a downward trajectory, aligning with SARB’s efforts to curb rising prices. The inflation rate at 3.8% in September represents a significant improvement from previous months, offering potential for policy adjustments that may relieve economic pressures on consumers. SARB has maintained its cautious approach, signaling that further policy accommodation may be considered if inflation remains contained. Although SARB’s target range is between 3% and 6%, inflation dipping below the 4.5% midpoint opens a window for more accommodative measures, possibly before year-end.

Stagnant Food Inflation and Key Drivers

Food inflation remained at 4.1% in September, a significant deceleration compared to levels earlier this year. In particular, inflation within the fruit and vegetable categories saw strong gains, with year-on-year increases of 2.9% and 6.8%, respectively. This rise in food prices, however, contrasts with decreases in the prices of other items such as bread, cereals, meat, sugar, sweets, and desserts. A continued decline in oils and fats further mitigated food inflation, contributing to the stability observed in the annual rate.

Monthly Changes and Subindex Pressures
Month-on-month, food inflation experienced a marginal uptick of 0.4% in September, up from 0.2% in August. This is primarily due to increased prices for key produce items affected by unfavorable weather earlier in the year. Vegetables, especially potatoes and tomatoes, experienced notable price increases due to limited supply.

Maize Market Dynamics: A Key Influence on Bread and Cereals Prices

Maize prices have seen substantial fluctuations, heavily impacting the bread and cereals category. The eighth 2023/24 maize harvest estimate projected a total of 12.80 million tonnes, a level insufficient to meet long-term domestic demand. The South African Supply and Demand Estimates (SASDE) report indicated ending stocks of only 955,282 tons as of April 2025, equating to just one month’s worth of supply.

In September, white maize prices surged by 2.8% month-on-month and 41% year-on-year, reaching R5,510 per tonne. Yellow maize prices also saw a monthly rise of 2.2% and a yearly increase of 8.7%, hitting R4,159 per tonne. Regional demand for white maize imports from neighboring Southern African countries, grappling with similar supply shortages, has amplified pressure on prices.

Impact of Vegetables on Inflation: Weather-Induced Price Spikes

Vegetables have remained a challenging segment within food inflation. South Africa experienced severe weather patterns earlier in 2024, damaging crops and causing delays in the harvest of staple vegetables. Potatoes and tomatoes, two essential food items, saw steep price increases due to constrained supply. However, with an improved weather outlook and supply increases expected in the coming months, vegetable prices may stabilize by December. This adjustment should alleviate some of the pressures from this category.

Global Context: How International Markets Impact South African Food Prices

South Africa’s inflation is closely tied to global agricultural markets. Maize, wheat, and rice prices on the global stage are pivotal, influencing local prices. This year, the global grain balance sheet has improved, with stronger wheat and rice yields lowering international prices. Additionally, wheat prices are expected to remain low, influenced by Russia’s continued output and competition with Ukraine.

South Africa’s reliance on imports, especially for wheat and rice, makes it vulnerable to exchange rate volatility. Although the rand has faced recent challenges, it remains relatively stable against the dollar. Any strengthening of the rand could lead to lower prices for imported grains, potentially easing domestic food inflation.

Projected Food Price Trends and the Role of La Niña

Weather patterns play a crucial role in shaping agricultural output, and forecasts for a La Niña season in 2024/25 bode well for South Africa’s upcoming crop cycle. La Niña typically brings higher rainfall, beneficial for maize and other staple crops. Improved rainfall could lead to a stronger maize harvest, helping to moderate prices in the year ahead. Currently, futures prices for white maize slated for July 2025 delivery are trading at R3,789 per tonne, significantly below today’s spot price of R5,623 per tonne.

This expected price drop highlights the importance of favorable weather in supporting affordable food costs. A decline in maize prices, combined with stable wheat and rice markets, could offset some of the inflationary pressures impacting South African households.

Regional Food Inflation: How South Africa Compares

South Africa’s food inflation rate, while steady, remains relatively low compared to some other African economies. According to the African Development Bank, several countries in East and West Africa have faced double-digit food inflation due to a mix of conflict, supply chain issues, and extreme weather. Countries like Nigeria and Ethiopia, for example, reported food inflation rates above 20% this year. South Africa’s lower rate reflects a stronger agricultural infrastructure and greater import access.

However, South Africa’s relative success in managing food inflation does not guarantee stability. The economy is still susceptible to global commodity price shifts and currency fluctuations. Continuous vigilance from SARB, alongside potential interventions to manage exchange rate stability, is essential to keep inflation in check.

SARB’s Policy Strategy: Balancing Inflation and Economic Growth

The South African Reserve Bank has held interest rates steady for the past ten sessions but may reconsider this stance given the recent inflation data. The bank’s shift to a “neutral” position in October marks a departure from its previous “withdrawal of accommodation” stance, indicating a flexible approach that could incorporate rate cuts if inflation remains subdued.

A shift towards policy accommodation would support economic growth by reducing borrowing costs, encouraging consumer spending, and boosting investment. However, SARB’s caution reflects concerns about external risks, particularly with respect to energy and food prices. Recent geopolitical events and trade dynamics have introduced new uncertainties that the central bank will have to navigate carefully.

The Outlook for South African Consumers

For consumers, the steady food inflation rate provides a degree of predictability, yet persistent monthly pressures underline the ongoing strain on household budgets. The end-of-year festive season typically brings heightened food demand, especially for fruit, vegetables, and grains, so these subcategories could experience renewed inflationary pressures.

In light of these pressures, SARB may focus on additional measures to manage domestic inflation if global conditions worsen. Efforts to stabilize the currency, particularly against the dollar, could help mitigate import-driven inflation, ensuring South African consumers are somewhat shielded from the full impact of global price shifts.

Conclusion: Balancing Inflation, Growth, and Stability

South Africa’s steady inflation rate is encouraging for policymakers, but it’s clear that volatility remains a concern. SARB’s readiness to adapt policy to support growth while keeping inflation within target signals a balanced approach to economic management. With improved global and regional agricultural outputs expected, the food inflation outlook remains cautiously optimistic.

Still, risks linked to currency fluctuations and potential supply chain issues mean SARB will remain vigilant. As South Africa navigates these dynamics, SARB’s policies will be pivotal in steering the economy through the global uncertainties that lie ahead.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

1st November, 2024