Decrease in living cost signals inflation reprieve

By Conrad Onyango

Global prices of wheat, vegetable oil and sugar have seen month-on-month drops since March, signalling an easing in the cost of living in many African countries.

Vegetable oil showed the clearest drop of the three commodities over the review period. 

The latest United Nations Food and Agriculture Organization’s (FAO) food price index showing edible oil prices fell by 15.9 percent from March to an average of 211.8 points in June, on rising production and supply volumes.

“World palm oil prices declined on seasonally rising output of major producing countries and prospects of increasing supplies from Indonesia,” according to the FAO index.

Similarly, reduced import demand occasioned by the rising cost of cooking oil, the organisation said, is resulting in lower prices for world sunflower and soy oils.

The lifting of a three-week export ban by Indonesia, the world’s largest palm oil producer, has also helped to ease cost of vegetable oil in Africa and other international markets.

The falling international prices signal prospects for lower domestic prices and an increase in demand by local industry. 

Lack of raw materials and high forex exchange have been linked to high cooking oil prices in many countries on the continent. Many households have been hurt and some manufacturers, such as Kenyan edible-oil producers Pwani Oil and Kapa Oil Refineries, were forced to temporarily halt operations in June.

Seasonal availability from new harvests, improved crop conditions in some major wheat producing countries, and higher production prospects in the Russian Federation have all seen the price of that commodity fall by 5.7 percent in June – compared to a 4.1 percent drop recorded for all cereals.

This is a big reprieve for Somalia, Benin and Egypt, among Africa’s 25 wheat import-dependent economies. Imports had come largely from Ukraine and Russia. According to the International Monetary Fund, imports make up as much as 85 percent of wheat supplies in some parts of Africa.

United Nations Conference on Trade and Development(UNCTAD) data shows between 2018 and 2020, Africa imported 3.7 billion US dollars’ worth of wheat. Of that, 1.4 billion US dollars’ worth came from Ukraine. 32 percent came from the Russian Federation.

The sugar price index has followed a similar trend, falling by 2.6 percent in June- its second consecutive slump.

Despite the drops prices remain high compared to a similar period in 2021 and prices will have to fall a lot further to result in a significant easing of inflationary pressures. Overall, the food price index remained high, at 154.2 percent – driven by rise in milk and dairy prices.

“The factors that drove global prices high in the first place are still at play, especially a strong global demand, adverse weather in some major countries, high production and transportation costs, and supply chain disruptions due to COVID-19, compounded by the uncertainties stemming from the ongoing war in Ukraine,” said Máximo Torero Cullen, FAO Chief Economist.

In a large part of Africa, food prices account for about 40 percent of consumer spending, highlighting the strain experienced currently by most households on the continent. 

The IMF sees inflation remaining elevated in Africa, through 2022. Inflation rates – last seen this high in 2008 – were largely driven by Sudan which has the highest inflation rate – at 245 percent – in Africa according to
Statista (. (Bird)