The SA Daily
21 February 2018
Benign inflation forecasts despite WC drought
Elna Moolman
- We expect inflation to have moderated to 4.4% y/y in January from 4.7% y/y in December due largely to the decline in fuel prices and the expected moderation in food inflation in January. We expect benign food inflation in 2018 despite the intense drought in the Western Cape (WC) which we expect to have a bigger negative impact on economic growth and the trade balance than inflation would have.
- Our relatively bullish rand forecasts, which help to contain grain prices (which are closely linked to global prices and thus directly influenced by the exchange rate), play an important role in our food inflation forecasts. In turn, relatively low grain prices (feed costs) should help to contain poultry prices.
- Wheat imports are expected to increase in response to the drought but prices should remain around import parity. Further, maize production is expected to be significantly lower, as large carry-over stocks from last year should limit the extent to which domestic prices move from export- to import-parity prices. Lastly, the negative impact of the drought on the quality of fruit may mean that exports are redirected to the domestic market, thus helping to contain prices (see our report Macro Weekly of 18 February, by Elna Moolman).
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