Higher international food prices will have a more aggressive impact on African CPI readings than those in advanced economies.
According to Oxford Economics Africa, this is due to heavier weightings of foodstuffs in CPI baskets.
But the impact will extend far beyond headline CPI prints: calls for subsidies will either be heeded, putting pressure on the fiscus, or disregarded, resulting in social discontent. South Africa and Nigeria are taking advantage of commodity price tailwinds to plaster over deep underlying economic issues; Kenya and Egypt are providing support despite concerning fiscal trends; while Tunisia and Ghana have had their fiscal wings clipped, and are unable to provide significant support, thus running the risk of popular backlash.
Oxford Economics Africa points out that food prices have trended higher over the past two years, and the war in Ukraine has exacerbated this trend.
While the cost of essentials has increased, many African countries including South Africa, Nigeria, Kenya and Morocco struggle with unemployment rates much higher than pre-pandemic levels. This creates an environment vulnerable to unrest as fewer incomes are available to pay for more expensive essentials.
Social unrest has already been seen in South Africa, Morocco, Tunisia, and Ghana, while the fear of unrest has guided policy in Nigeria and Egypt.
Oxford Economics Africa believes there will be more unrest in some countries, the question being where and to what extent.
Governments are taking extraordinary measures to cushion the economic blow and fiscal consolidation has taken a backseat. Egypt and Nigeria have delayed plans to scrap food and fuel subsidies, Kenya has extended fuel subsidies, South Africa has temporarily cut fuel levies and has extended pandemic-era grants, and Morocco has implemented a host of social transfers.
In addition, Kenya and Morocco have increased the national minimum wage, and other African countries are expected to follow suit.
“Most African governments will scramble to cushion the loss of purchasing power stemming from higher inflation. Many will not be able to provide the necessary relief. Unrest is a matter of ‘when and where’ and not ‘if’,” says Jacques Nel, head: Africa Macro at Oxford Economics Africa.