The Weakening Rand May Bring Higher Food Prices

Aug 25, 2015

Black  Monday

Consumers may soon face a spike in food prices, as the South African Reserve Bank (Sarb) implements strategic interest rate hikes and the rand plummets against the dollar.

On Black Monday, (24th August 2015) foreign investors all over the world traded in their commodity-related currencies, fearing low economic growth in China. Accordingly, the rand nosedived by 8.5% to a record low of R14.07 against the dollar.

Food Price Hikes Anticipated

In the impending gloomy months, consumers can expect food, imported goods and debt prices to skyrocket.

Sarb may have to raise interest rates merely to avoid any further weakening of the rand.

Though food inflation remained fairly subdued this year, drought compelled our country to import greater amounts of food – paid for in dollars, of course.

Essentially, we can expect the depreciating rand and drought to impact specific food prices during the next few months.

Widespread Ramifications 

Owing to import parity pricing, primary food commodities, i.e. wheat and maize, which are grown in South Africa, are typically traded at rates nearing global dollar prices.

As follows, to ensure the sustainability of wheat and maize farming, the prices of these foods will have to be put up if the rand continues to weaken against the dollar. In addition, as maize and wheat are used for chicken and cattle feed, meat prices will also have to be increased.

Certainly, food price increases would have sweeping repercussions for us all.

In July, Sarb raised interest rates by 0.25% up to 6%, the first repo rate hike in a year, with a view to curbing accelerating ­inflation, which is currently at 5%.

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