HILTON TARRANT: We spoke with Azar Jammine last night on the Market Update. At the headline level he suggested that fears and panic over the impact of the weaker rand, of high fuel and food prices on inflation were exaggerated. Chris Becker, market strategist and economist at ETM Analytics, joins us now.
Chris, you and your team have been dutifully tracking a basket of food since March last year. We spoke with Russell Lamberti, your colleague, back in November. At that time he told us the price of an average shopping basket was up 9% in those eight months between March and November. How are things looking now? Are they decidedly worse?
CHRIS BEKKER: Ja. Good evening, Hilton. I think what Dr Jammine is referring to is the fears around food and fuel inflation and how it will impact Statistics South Africa’s consumer price index. In that regard there might not be too much concern.
But when we are looking at the prices, as you mentioned – we’ve been tracking a basket of goods, the same items, at four different retailers in the northern Johannesburg region. What we see coming through in the prices is quite strong inflation. So you mentioned in November we saw prices going up by 9%. In January we actually measured prices on Monday of this week – we’ve seen that prices have gone up 11.2% since March of last year, which translates to an annualised rate of increase of slightly in excess of 13%. So there’s certainly reasons for why consumers might be concerned. Even if it doesn’t show up in the consumer price index, they are going to be feeling it in their budgets and in their pockets.
HILTON TARRANT: You are tracking goods and food that everyone buys in South Africa. You are tracking things like eggs, like rice, like maize meal, like coffee.
CHRIS BEKKER: Exactly. So its things like chicken, coffee, maize meal, eggs, salt, lean beef mince, olive oil. Then we do also have a couple of other things. We are looking at some toiletries, basic toiletries and then some kitchen detergents and stuff as well. We thought it would be quite a broad sort of cross-section of what a household would be buying on a regular basis. Those are the items we are tracking through time.
And it’s very simply: what is it going cost you to buy exactly the same basket of items every month, the cost of loading those things into a basket and walking through the till – what is it going to cost you? And that price has gone up 11% since March to buy that basket.
So in effect South Africans’ salaries are actually going a lot less [far]. They are stretching less at the moment, and consumers are able to afford less stuff. That’s a direct consequence of this weakening rand that we’ve seen.
By definition, a weakening rand is inflation because everything that we buy in the shop is priced in the rand. So if the rand weakens, it’s inflationary. It might not necessarily reflect in the consumer price index. We’ve also done a lot of research to explain why it might not reflect in the consumer price index. We think it’s not the best measure of trying to track prices through time. We think our measure might be a bit more realistic in terms of understanding the consumer psyche.
HILTON TARRANT: And with the weakening rand and the sharper weaker rand, in fact, 23% through last year, imported foods and imported things like pasta from markets that perhaps have a surplus are becoming surely less of an option or less of an alternative?
CHRIS BEKKER: Ja, they are. The one thing that is quite concerning is the rate at which the price of maize meal has gone up in the last couple of months. In terms of the maize meal prices in the shops that we are looking at, the price is up 13.4% since March.
But what’s also of serious concern is that since December the maize meal price as it’s traded on the Safex exchange has gone up in excess of 30%. So in the next few months it’s going to filter through to the retail level and our low-income areas in South Africa are going to feel that in their pockets. And if we think the unrest is bad at the moment, wait until those prices hit low-income earners and the unemployed people. They are going to get angry about this.
HILTON TARRANT: You touched on it earlier – buying power and how with food inflation running over double-digit by your tracking on this common basket of goods, the average South African, if lucky, got maybe a 5% salary increase last year, 6% maybe, possibly 8% at a stretch – but this really means erosion of buying power.
CHRIS BEKKER: Ja, I actually did the calculation earlier today. If a worker got a slightly above CPI salary increase, in foreign currency, looking at the US dollar, that person’s salary has gone down by 17% in dollar terms. So compared to the rest of the world, South African workers are becoming sharply poorer at the moment as a result of this weakening rand.
So we are going to pay more for imported stuff, we are going to pay more if we want to travel abroad. Obviously a large portion of South Africans can’t do that, but they are going to feel it through higher imported prices.
And on the other side it’s going to be very cheap for foreigners to come into South Africa and buy assets from us. So we are essentially giving away our wealth at a discount at the moment.
HILTON TARRANT: Thanks to Chris Becker. David, there you have it from Chris Becker who tweeted some very interesting stuff this afternoon. His Twitter handle is @ChrisLBecker.
DAVID SHAPIRO: And he did say that he’d be on SAfm at six-fifteen!
HILTON TARRANT: He did indeed. Have a look at some of those prices that he tweeted on Twitter. Maize meal, as he says, 13% higher, eggs 12% more expensive from a year ago. Chicken 37%.
DAVID SHAPIRO: I’m staggered that it doesn’t come through in the numbers. Next week we’ve got the monetary policy meeting. I’d love to hear what Gill Marcus has to say about inflation. I know they look at a very narrow basket but I’d be very, very cautious about it. I’d be worried how this is going to translate into the consumer’s wallet and what this means. You say your bills are up; likewise I can see the effect. I think many of us are in a more fortunate position and maybe we can carry it easier than certainly at the bottom end of he market.
But Hilton, isn’t this reflected in Shoprite – as lowering demand?
HILTON TARRANT: We are going to see it in the margins because a lot of these retailers would have kept volumes at least a little bit higher. You’ll sacrifice 0.1% here, maybe 0.2%.
DAVID SHAPIRO: I think you can see it in some of the spending patterns coming through.
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