Why is official food basket inflation rate higher than that of food retailers?

Why do food retailers have a lower inflation rate than the food basket? Are people buying down? What does it mean?

Stats SA calculates the food inflation rate based on the basket of food, as over 8%. Yet this week Pick 'n pay and Checkers reported food inflation rates calculated on their baskets at 2 and 3% respectively.

So if this is true, then where does that higher inflation figure come from?

Evan Walker, Analyst at 36one, helps us understand.

Its always a bit of a mystery to us as well. We know the retailers combine a basket, and within that basket is a number of variables, including potentially two to three hundred items. These items move around from year to year, some come in, some go out.

Evan Walker, Analyst at 36one

What we do know is that the consumer does trade down quite significantly during times of stresses like we see now.

Evan Walker, Analyst at 36one

What we do know is that the basket does comprise other things beside food. One big item in the basket is cellphone airtime which is quite deflationary.

Evan Walker, Analyst at 36one

One thing we know the retailers have done quite well over the past six months, is they have bought into these price increases.

Evan Walker, Analyst at 36one

Consumers during these times move for example, to changing brands to no names brands, as well as buying smaller pack sizes, and retailers struggle to measure this, and says walker this can cause distortions.

We see a lot of trading down both to a lower price point and to a smaller size package.

Evan Walker, Analyst at 36one

Walker says retailers year on year baskets are not fully disclosed. He says it is a politically sensitive issue for them to disclose.

But, he says, we are going to be paying much higher prices for food.


This article first appeared on 702 : Why is official food basket inflation rate higher than that of food retailers?


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