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Which way will food prices go in 2012?

Oct 27th 2011, 08:19


Which way will food prices go in 2012?**

Food price inflation is a fickle and difficult to track; it’s influenced by a complex web of interdependent factors that are subject to varying degrees of volatility, which rarely benefits consumers.

At best, prices remain constant for a while before a spark of activity causes a malicious alignment that conspires to drive prices upward, with aggression. This sums up the irregular pattern of food prices – they’re very quick to rise but, slow to retreat.

While most consumers believe that food prices keep escalating by about 35%, we know that’s not true.

South Africa’s two biggest FMCG retailers reported food price inflation of between 0% and 1.3% in their 2011 annual reports. Pick n Pay, for the six months to August believe that figure to be close to 3%. Low food price inflation is a major contributor toward keeping the overall CPI rate lower than anticipated, and may well help to stimulate an interest rate cut.

Retailers like inflation to be mild and consistent, the moment prices start bouncing around or shooting for the sky, consumers react and trading becomes difficult. Shoprite has proven that keeping prices down quickly attracts new customers. When there is price deflation, trading becomes even more difficult and a lean supply chain becomes critical.

What we do know is that consumers are strained at the moment and any sharp upward movement of prices will have them reacting quite aggressively.

For various reasons 2012 will be a tough year for most South African retailers. One can only hope that they will be aided by a moderate and stable inflation of food prices.

Craig Ballantyne

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