The annual food producer price inflation decelerated to 4.7% year-on-year (y/y) in June 2017, from 5.7% y/y in May 2017. This shows the benefits of the higher agricultural output this year following good summer rainfall across the country. According to Agriorbit, the deceleration was largely in grain, sugar, dairy, starches, and vegetable and fruit products.
Meanwhile, meat and meat products accelerated due to on-going cattle herds restocking process resulting from the 2015/2016 drought, as well as low base factors.
The general deceleration in food producer inflation is due to the recovery in agricultural production. The total production of summer grains and oilseeds is estimated at 18.44 million tonnes, which is a 96% annual increase.
This has led to a widespread decline in agricultural commodity prices. White maize spot price currently trades at levels around R1 768 tonnes, which is 59% lower than the same period last year.
While meat price inflation increased at the fastest pace of 17% y/y, there seems to be some level of improvement in slaughtering which could lift meat supply. Recent data from the Red Meat Levy shows that farmers slaughtered 202 886 head of cattle in May 2017, up by 5% from April 2017.
The large agricultural output will keep agricultural commodity prices under pressure over the short-to-medium term. This essentially means that food inflation could also remain at relatively lower levels.
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