While the cost of living crisis is a widespread problem that affects many economies around the world, it is important to understand this crisis from a South African perspective, given the socio-economic challenges such as inequality, poverty and unemployment that the country faces. It's worth figuring out. The World Bank ranks South Africa as the world's most unequal society, with unemployment currently at around 33%.3— as the best in the world.Four These two factors result in very different inflation experiences for different income groups.
Food prices in South Africa, like many other markets, are not immune to external developments. Supply chain challenges and geopolitical events such as the Russia-Ukraine conflict are having a significant impact on global food prices and, therefore, overall inflation trends.
Although South Africa has a highly developed agricultural sector, it is dependent on imports to meet domestic demand for key agricultural products and raw materials and is therefore exposed to fluctuations in global commodity prices. For example, South Africa imports about 50% of its wheat demand and 80% of its fertilizer demand.Five The National Agricultural Marketing Council estimates that domestic fertilizer prices for potassium chloride, urea, and monoammonium phosphate will increase by almost 180%, 140%, and 102%, respectively, between May 2021 and May 2022 due to rising international market prices. It is estimated that it has increased.6
High dependence on imports for certain food and agricultural products, combined with rising international prices and a weak local currency, is creating an inflationary spiral. South Africa is self-sufficient in maize, an important staple food for many people in the country, but the price of maize increased by 37% between May 2021 and May 2023.7
The country's ongoing power crisis is forcing farmers and other key players in the food supply chain to rely on alternative, often expensive energy sources, ultimately consuming some of these additional costs. The cost has to be passed on to the public, further contributing to the rise in local food prices. .
Although South Africa's headline inflation rate has eased since its peak in July 2022, food inflation continued to rise sharply until March 2023 (Figure 1). In April 2023, food inflation exceeded headline inflation by 7.1 percentage points. This reflects the differences in the speed of price changes between categories. It also suggests that different income categories have different inflation experiences.