Food prices are likely to spike and reverse the forecast slowdown in food prices in 2023 if the current load shedding is sustained for a longer period. Domestic food prices remained high for most of 2022, despite the moderating consumer inflation (CPI). Food inflation rose to 12.5% year on year and contributed 2.1 percentage points to the total CPI rate of 7.4% in November. This rise in local food prices was largely attributed to a lag effect of high global food prices, which were filtering through into the domestic market.
Senior agricultural economist at FNB Paul Makube said:
"This may dampen the inflation outlook in the last six months of this year when we had expected prices to start going down in South Africa. In the medium term, this could have an upward impact on food prices if the situation is not arrested sooner," he said.
Professor Raymond Parsons from the NWU Business School said 2023 was fixing to be a difficult year for consumers and businesses alike.
The National Energy Regulator of SA (Nersa) granted Eskom permission to increase electricity prices by 18.7% this year and 12.74% next year. The new prices will come into effect from April for Eskom users, while consumers who get their electricity from municipalities will see the increase in July. The announced increase does not include the markup by municipalities. Eskom had asked for a 32% increase in its multi-year price determination. These increases will pose an upside risk to inflation.
READ: Nersa greenlights 18.65% electricity tariff hike amid load shedding woes
"In 2022, CPI likely averaged about 6.8%, up from 4.6% in 2021. It will ease throughout 2023, averaging around 5.4% for the year, muted by base effects, moderating food prices and lower global oil and other prices, which will be subdued by weaker global demand. Core inflation will remain steady between 5% and 5.3%, with its upside restrained by weak domestic demand," Nedbank noted in its weekly economic outlook.
The agricultural sector has raised concerns about food security as the effects of load shedding are felt throughout the industry.
Chief economist at Agbiz Wandile Sihlobo said the impact would probably show in the volumes of products to be harvested/produced later in the coming months due to the time lag in agricultural production stages.
He said: "Farmers who rely on irrigation were concerned that persistent load shedding would negatively affect production. In crucial field crops, roughly 20% of maize, 15% of soybean, 34% of sugarcane and nearly half of the wheat production are produced under irrigation. Fruits and vegetables also heavily rely on irrigation and thus face similar challenges.
"In red meat, poultry, piggery, wool, and dairy production, there are also concerns that load shedding beyond stage two makes operations and planning challenging, as these industries all require continuous power for their usual activities."
READ: Farmers: No power, no food
Leaders in the agricultural sector met with the minister of agriculture, land reform and rural development, Thoko Didiza, recently to convey the difficulties faced by businesses as well as additional costs associated with load shedding and [of course] a task team was formed to monitor the impact of load shedding on the sector.
Sihlobo added: "With Eskom's challenges likely to be with us for some time, reducing reliance on Eskom will probably be a strategic business survival consideration for many businesses, although costly. Investing in alternative power sources will need to be prioritised where financial resources permit. This alternative generation may not necessarily take a business "off the grid" but ensure the continuity of crucial business activities during the cycle of load shedding."
Makube echoed sentiments that consumers were facing another tough year ahead, as they would still feel the impact of increased interest rates and reduced disposable incomes on the back of low salary increases and high inflation.
Parsons has offered advice to consumers faced with incremental costs of living: "In present challenging economic circumstances in SA, the watchword for many consumers this year must therefore be ‘wise spending’ - comprising having extra-smart budgeting, looking for bargain buys, and avoiding excessive debt. The last-mentioned is particularly significant if borrowing costs are to rise further this year."