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Ever wondered what the impact of imported food products into South Africa has on food inflation in South Africa?
Or increased production costs as reported by food producers has on the food inflation rate experienced by consumers? We compare the year on year growth rate in food inflation for food items being imported, inflation as reported by food producers and the final food inflation of consumers as measured by the consumer price index (CPI). |
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Imported food inflation, food producer inflation, consumer food inflation
The line graph below shows the year on year inflation rate for food for food importers, food producers and food inflation as experienced by consumers. Lastly the red dashed line graph shows the 12 month rolling average of food importers inflation.
The imported food inflation is as measured by the Unit Value Indices (UVI) published by Statistics South Africa (Stats SA), food producers inflation is as measured by Stats SA in the Producer Price Index (PPI) and the food inflation of consumers is as measured by Stats SA in the Consumer Price Index (CPI).
The imported food inflation is as measured by the Unit Value Indices (UVI) published by Statistics South Africa (Stats SA), food producers inflation is as measured by Stats SA in the Producer Price Index (PPI) and the food inflation of consumers is as measured by Stats SA in the Consumer Price Index (CPI).
What is immediately noticeable in the graphic above is the fact that the food imports inflation rate is extremely volatile, when compared to the producer and consumer inflation rate. And due to this volatility it was decided to calculate the 12 month rolling average inflation for food imports to smooth out the series and get the underlying trend from the more volatile series. It is however no surprise that import food inflation rate tends to be more volatile, as the cost of imports are dependent on international market prices and of course currency movements tend to vary substantially over very short periods of time.
The other observation to make is the fact that when the import prices are smoothed out, as shown by the dashed line, the trend in it is very similar to the trend both the food producer inflation and the consumer food inflation rates. All be it the levels of inflation are different.
Interestingly the food producer inflation and consumer food inflation rates are very similar, but in the majority of cases the consumer food inflation rates are slightly higher than that of food producers inflation. Thi shows that food producers are successfully passing on the inflation that they experience. And the smoothed out average rate of inflation of food imports is well below that of producers and consumers.
The likely reason for this is that cheap food products are imported, some further production and processing might be added to these products. Producers then add their margins on these goods, and then sell it on to consumers.
In months where consumer food inflation is lower than food producers inflation, food producers and the retailers were unsuccessful in passing on their inflation experienced onto consumers. If this carries on for a sustained period of time its a clear sign that consumers are struggling and this will start eating into the profit margins of producers as they will have to lower prices, or reduce their levels of inflation passed on to consumers in order to get rid of their goods produced.
The other observation to make is the fact that when the import prices are smoothed out, as shown by the dashed line, the trend in it is very similar to the trend both the food producer inflation and the consumer food inflation rates. All be it the levels of inflation are different.
Interestingly the food producer inflation and consumer food inflation rates are very similar, but in the majority of cases the consumer food inflation rates are slightly higher than that of food producers inflation. Thi shows that food producers are successfully passing on the inflation that they experience. And the smoothed out average rate of inflation of food imports is well below that of producers and consumers.
The likely reason for this is that cheap food products are imported, some further production and processing might be added to these products. Producers then add their margins on these goods, and then sell it on to consumers.
In months where consumer food inflation is lower than food producers inflation, food producers and the retailers were unsuccessful in passing on their inflation experienced onto consumers. If this carries on for a sustained period of time its a clear sign that consumers are struggling and this will start eating into the profit margins of producers as they will have to lower prices, or reduce their levels of inflation passed on to consumers in order to get rid of their goods produced.