Price hikes in wings as businesses fend off cost pressures

Friday, 5 February 2021

Building materials like timber and steel mesh are some of the products poised to rise.

Consumers should brace for price hikes as businesses report cost pressures are starting to bite.

A short-term spike in prices seems likely, with ANZ's latest business outlook showing that a net 71 per cent of businesses were grappling with higher costs.

A record net 47.9 per cent of businesses were also planning to increase their prices as a result.

ANZ said the hikes were unlikely to concern inflation watchdog the Reserve Bank, as long as the supply disruptions that have plagued importers since Covid-19, are resolved during the year.

Timaru businessman Andrew Milliken, of Milliken’s Furniture and Beds, is among retailers who say they can no longer absorb the steep rise in shipping cost on imports.

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As alarming as it sounded, BNZ head of research Stephen Toplis said Kiwis forgot they had had virtually no inflation for a long time – a fact that seemed hard to believe when rent and house prices were soaring.

Businesses were juggling a number of price pressures, he said, and they were not just related to supply shortages and soaring freight costs.

Milk prices are tipped to rise after a strong lift in global dairy prices.

''We're also seeing things like the minimum wage pushing higher, which will affect some people. We're about to see certain environmental cost impacts being faced by business … and as the world starts to recover, we're also starting to see commodity prices moving higher.''

Consumers had also been in a post-Covid shopping frenzy, boosting demand for many goods.

However, freight costs were having an impact, particularly on imported produce and goods and domestic fruit prices had been affected by the shortage of pickers this year.

Steel and Tube says raw materials and freight are behind a big rise in steel product prices.

The cost of ongoing controls against Covid was another pressure.

''We're not talking about rampant inflation. The point is, we have been the beneficiaries of multiple price falls across many areas over the last few years and it's much less likely to be the case going forward.''

Many of the price falls had been technology related. ''Things like TV prices and car prices have been plummeting, but you can't eat a TV.''

One food staple that could rise later this year is milk, reflecting a strong lift in commodity dairy prices.

Consistent price increases at Fonterra’s global dairy trade (GDT) auction have a strong influence on the cost of wholesale milk.

Port congestion has created some empty shelves, such as this area of Kmart Riccarton just before Christmas.

But Fonterra Brands managing director Brett Henshaw said that did not mean suppliers of milk and dairy products like itself then had to raise their prices for the retail market.

‘’While GDT prices can be volatile, we know the average Kiwi’s income doesn’t fluctuate from one month to the next. That is why we always take a longer term view when determining our prices,’' he said.

Some building supplies are also poised to lift. Mitre 10 has signalled to its stores that steel mesh and bar prices will be going up next month at between 14 per cent and 18 per cent.

Timber and ply prices were also going up and a further timber price hike was due later this year.

Stores were encouraged to get their orders in early for certain products where stocks were low such as landscaping materials, nails and fencing.

Steel and Tube, a distributor of steel products, said '’it was certainly an inflationary environment'’ and it was having to pass costs on.

Chief executive Mark Malpass said its steel mill suppliers were telling him that raw materials, particularly iron ore and nickel, had risen significant as had transport and container costs.

'’We hold on as long as we can,’' he said.

In the retail sector, consultant Chris Wilkinson of First Retail NZ said price rises were expected but not yet apparent.

However, there had been a lot of talk about '’delayed shipments, missed seasons, out of stocks impacting sales opportunities and consumer goodwill'’.

Greg Harford of Retailers NZ said the biggest issue at present for retailers was supply chain congestion which was requiring goods to be re-routed and it would have to feed into the price of goods.

‘’I’m hearing feedback from SMEs [small to medium enterprises] that this is costing thousands of dollars a month, and that’s not sustainable without seeing price increases.

'’The issue is across the board – anything imported is costing more to bring into the country.'’

With fewer ships coming to New Zealand, Harford also called on shipping companies to increase the number of services '’down to this part of the world'’.