By Lloyd Phillips
As things stand, the slight increase in South Africa’s food inflation from January to February is not expected to raise major concerns for consumers. However, it remains to be seen what the government’s plans are with potential VAT increases.
Mild price increases in cereal products, fish and other seafood, vegetables, and fruit and nuts were the main drivers behind South Africa’s consumer food price inflation climbing slightly from 1,5% in January to 1,9% in February.
Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa (Agbiz), is, however, of the view that even if prices at commodity level start showing consistently upward price trends in the foreseeable future, “The outlook for 2025 remains promising, and consumer food price inflation could be relatively benign despite the price trend change.”
He says that although recent widespread heavy rains are broadly positive for South Africa’s agricultural production, they caused some minor disruptions in vegetable markets, thereby contributing to subsequent price increases in this category.
Stronger global demand for fruit and nuts contributed to the recent price increases in this category.
Sihlobo adds that recent rains are a boon for South Africa’s summer grain and oilseed crops currently growing in the fields. The Crop Estimates Committee’s latest forecast of 17,2 million tonnes for the 2024/25 summer season may be revised upwards.
“With that said, for the first half of 2025, grain-related products remain the upside risk to consumer inflation following a surge in white maize prices in recent months because of the poor crop harvest due to the drought.
“Moreover, while they are generally under pressure, we suspect that prices of poultry products and of red meat could increase moderately in the coming months because of higher feed costs from increased prices of mainly soya beans and yellow maize as the country awaits a new crop season.”
Sihlobo points out that price increases for these meat products could well be countered by weakened demand from South Africa’s consumers, who widely remain under economic pressure.
VAT also impacts food consumption
Meanwhile, it remains to be seen what the government’s final decision on proposed VAT increases will be. The Pietermaritzburg Economic Justice and Dignity Group (PMBEJD), an NGO, remains cautious about even a 0,5% increase, saying that it “still hurts people and still hurts the economy”.
Using its food price data from February, the PMBEJD explains that a 0,5% increase, raising VAT to 15,5%, would push the total VAT on a basic household grocery basket to R334,81. This impact could, however, be somewhat offset by zero-rating items such as chicken feet, gizzards and livers, and baked beans.
“If these items are zero-rated for VAT, it could potentially result in a saving of R59,46 for consumers [for a basic basket of household groceries]. This saving would depend on the producers and retailers thereof passing this VAT zero-rated saving on to consumers,” the PMBEJD’s analysis states.
It also highlights, however, that an increase in VAT would raise prices of essential household items such as toiletries, electricity, water and transport. These additional costs would place further strain on already cash-strapped South African consumers, making it even more challenging to manage household budgets for essential purchases.
“VAT hurts consumer spending. A country that seeks to develop its economy puts investment on human capital at the centre,” the PMBEJD states.
“Therefore, we believe that the government needs to ensure a greater level of commitment to economic growth by ensuring that food and all our basic necessities are affordable for all of us.”
