South African construction industry bears the brunt of food price inflation

South African Construction Industry Bears the Brunt of Food Price Inflation

South Africa’s construction industry, one of the economy’s main growth drivers, was taking the strain from the “seemingly uncontrollable” rise in food inflation, an industry think tank said on Wednesday.

Industry Insight said that approved residential building plans, which was an indication of the pipeline construction activity, has slowed to a negative growth rate of 2,7% in 2007. In 2006, the growth rate was 8,6% year-on-year.

“Townhouse development has already decreased by 7,5% year-on-year in July 2007. Should this trend continue, we could expect to see an increase in liquidations and subsequent job losses,” the organisation said.

Consumer price inflation, excluding mortgage interest rate (CPIX) had slowed to 6,3% year-on-year in July, and Industry Insight said that, although it was regarded as good news, consumers still faced exceptionally high food prices, as CPIX continued to exceed the 6% target range.

“In 2002 food inflation rose to levels beyond 20% before recovering to less that 2% in 2004. During this time various investigations were commissioned into food prices and competitive practices in the food industry. Interest rates were mainly applied to contain CPIX, excluding food, which, at that time, had increased to a peak of 8,8% in November 2002,” the organisation said.

It added that CPIX, excluding food, had not bridged the 6% target since the end of 2003.

“The question now remains whether it is fair to affected parties such as the construction industry to apply another rate hike in an attempt to contain the impact of seemingly uncontrollable rising food inflation considering that gross domestic product growth has started to slow from 5,2% in 2006 to 4,5% in the second quarter of this year.”

Industry Insight suggested that food prices come under scrutiny, rather than raising interest rates, which would result in the deterioration of economic growth, weaker investment in particularly housing and potential job losses in the construction industry.

Authored By: Mariaan Olivier
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