SA’s rolling blackouts take their toll on retail sales, food inflation and business confidence
There was a spate of South African economic data on Wednesday, and most of it was gloomy. Consumer inflation slowed to 6.9% in January from 7.2% in December, which is a good sign. But food inflation accelerated, December retail sales were dismal and business confidence faded. Rolling blackouts are mostly behind these trends.
Let’s start with the consumer price index (CPI) for January, which showed that consumer inflation slowed to 6.9% on an annual basis from 7.2% in December. That is still an elevated level and remains well outside the South African Reserve bank’s 3% to 6% target range, but at least CPI is moving in the right direction.
But worryingly, food inflation – which had shown brief signs of peaking – accelerated in January to 13.8% from 12.7% in December. This means the “cost-of-living crisis” is worsening as real wages have been stagnating or declining at a time when poor and working class households – and the middle class as well – have to fork out more of their limited incomes to put food on the table.
“While in some regions of the world, consumer food price inflation has started to cool off, South Africa sees the opposite,” Wandile Sihlobo, Chief Economist at the Agricultural Business Chamber (Agbiz), said in a commentary on the data.
Prices for bread and cereals soared almost 22% in the year to January, and Sihlobo noted that this reflected “the pass-through of the price increases that food manufacturers have felt from the higher agricultural commodity prices in much of 2022”.
“There is typically a time lag of roughly three to five months before changes in farm prices show up in the retail prices of staple grains.”
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So, even though spot prices for some key grains have softened of late, retail prices have continued to climb, eating into the threadbare wallets of South African consumers.
And as with the rest of the data, rolling blackouts are one of the key drivers behind this sorry state of affairs. Sihlobo said the impact may not have been fully factored into the January read, which means this will continue to push food prices higher.
“We have stated previously that the disruptions caused by power supply interruptions to some food processing companies, as well as the associated cost increase, all present upside risks to consumer food price inflation,” he said.
Agbiz now sees food inflation for 2023 coming in slightly higher than its previous forecast of 5.5% to 6.0%, because of rolling blackouts.
The intensified scale of power outages was also one of the factors that dimmed the retail sector.
Retail trade sales in the year to December fell 0.6% and a similar monthly decline was recorded between November and December. Overall, retail trade sales rose 1.7% in 2022 compared with 2021, but that is hardly shooting the lights out, as many Covid restrictions remained in place in 2021.
“Together with weak mining and manufacturing output, this data supports our view that gross domestic product performed poorly in 4Q 2022, primarily due to hard load shedding and elevated living costs for consumers,” Siphamandla Mkhwanazi, FNB Senior Economist, said in a note on the data.
To top it all off, the Business Confidence Index compiled by the South African Chamber of Commerce and Industry (Sacci) fell 4.4 points to 112.9 in January, from 117.3 in December. It’s 4.1 points higher than it was in January last year, but that was when the Omicron variant was wreaking havoc.
Business confidence, unsurprisingly, is fading as 2023 dawns.
“… as the economic startup in 2023 began, the supply shortages for electricity became evident, with serious implications not only for households, but across all sectors of the economy,” Sacci said, with a touch of understatement.
Another indicator of confidence, or lack thereof, is the rand’s performance. On Wednesday, it once again flirted with the 18/dollar mark, trading around its lowest levels since early November.
The power crisis is the main factor draining energy from the currency. This in turn has serious consequences for food and the wider inflation picture, as well as for interest rates, which will almost certainly maintain their rise if things continue to go pear-shaped.
The effects of rolling blackouts are far-reaching, and rip through the economy like an electrical current. Small wonder that the unfolding results are shocking. DM/BM