Sweltering Heat Continues to Heighten Food Inflation Risk in South Africa

The South African central bank closely monitors food prices as it assesses whether it can safely begin lowering interest rates by the end of this year. Drier and hotter-than-usual weather in South Africa’s key summer crop-producing regions is hampering the outlook for the crucial maize harvest and increasing the risks of higher food price inflation, according to an agricultural industry group.

“The main risks to South Africa’s consumer food inflation in 2024 will primarily be white maize products,” said Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa. “We see upside risks to maize and grain product prices in the consumer food inflation basket.”

The South African central bank closely monitors food prices as it assesses whether it can safely begin lowering interest rates by the end of this year. It has repeatedly highlighted the risk that weather phenomena induced by El Niño can have on inflation.

The central bank’s models show that severe droughts caused by the climatic phenomenon could add between 3 and 8 percentage points to overall inflation.

Although farmers have managed to expand planting areas compared to the previous season, yields are expected to be poor and suffer from the heat and lack of rainfall, Sihlobo said.

Maize is one of South Africa’s primary crops and a staple food for millions of people. The country consumes most of the maize it produces and exports surpluses mainly to neighboring countries.

In its latest forecast, published at the end of February, the Crop Estimates Committee saw white and yellow maize crops decrease by 17.2% and 7.7%, respectively, in the 2023-24 season. Total maize production is estimated at 14.3 million tons.

Second production forecasts for the 2023-24 summer crops will be released on March 26 and are likely to indicate worsening conditions for maize.

South Africa’s annual inflation rate rose in January for the first time in three months, to 5.3%, from 5.1% the previous month. Food inflation, which has been the largest contributor to the headline figure, slowed to 7% from December’s 8.5%.

Central Bank Governor Lesetja Kganyago told Bloomberg last month that inflation prospects are volatile, ruling out the possibility of short-term rate cuts.

At its latest rate-setting meeting, the central bank kept its benchmark interest rate at 8.25%, its highest level in almost 15 years, which it has maintained since May.