Prices expected to rise after supermarket price reductions and freezes on essential items end, experts say

Thursday, 12 May 2022

Prices of essentials will increase after the freeze and price reductions.

Essential food items that have been frozen or reduced by supermarkets will probably be more expensive when the promotion is over, economists say.

Foodstuffs, owner of the New World and Pak ‘n Save supermarkets, announced it would be ‘rolling-back’ the prices of 110 of its most popular items to last year’s prices, from May 16 to August 14.

Foodstuff’s announcement came after Countdown said it would freeze the prices of more than 600 of its essential items this winter.

But professor of agricultural economic at Lincoln University, Alan Renwick, said although it would help consumers in the short term, the prize freezes and roll back would put further pressure on supermarket suppliers.

Commerce Minister David Clark frets over food-price inflation on April 13.

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“The suppliers will still be feeling these inflationary pressures on them during this time.

Pressure would be building on those prices once the promotions and reductions ended, possibly leading to higher prices, he said.

Countdown has frozen the price of more than 600 essential items for winter.

Renwick said the temporary reductions did not tackle the longer term issues in the supermarket sector, which were highlighted in the Commerce Commission.

Foodstuffs managing director Chris Quin said rolling back prices was more than a PR stunt, and Renwick agreed.

“It’s more than a publicity stunt because it’s real, but it’s not addressing the underlying challenges in the sector, about potentially a lack of competition.”

The Stats NZ food price index for April showed food prices were 6.4% higher in April this year than last.

Grocery food prices were up 6.4%, restaurant and ready-to-eat food up 5.3%, fruit and vegetables up 9.4%, meat, poultry and fish up 8.1%, and non-alcoholic beverages up 2.8%.

Food economist Puneet Vatsa said the perception of lower prices would also encourage shoppers to buy more.

Consumer NZ chief executive Jon Duffy says there’s no doubt prices will get more expensive following the promotion.

“Many would almost certainly not purchase only the frozen-price items.

“Therefore, it is important to understand what customers are buying and how they alter their purchases to take advantage of the price freeze.

“The benefits to customers will be limited should they continue to pay high prices on regularly purchased items, and pay less for those purchased seldom.”

Foodstuffs, which owns Pak’ n Save, New World and Four Square, is reducing the price on essentials from Monday.

Consumer NZ chief executive Jon Duffy said there was no doubt prices would increase at the end of the three-month price reduction and freeze period.

“I cannot see the supermarkets forgoing profit for an extended period of time, and that makes sense commercially,” he said.

Supermarkets took more than $1 million in excess profits every day, he said.

Inflation, supply chain constraints and Covid-19 related pressures would lead to higher prices from suppliers over the next three months, he said.

“Good on the supermarkets for reacting to high prices and consumer sentiment, as it’s clearly reached a point they can’t ignore.

“But if you step back from that, the fact that in order to get reasonable prices, we are relying on the benevolence of the supermarkets in cutting their profits, means consumers remain vulnerable,” Duffy said.

New competition would fix the issue , he said

A petition by Consumer NZ, calling on the Government to do more to get consumers a fairer price at the supermarket checkout had more than 56,000 signatures on Thursday.

In his pre-Budget speech on Thursday morning, Finance Minister Grant Robertson said food prices were linked closely to the broarder inflation challenge.

“We’re highly aware of the impact of increasing food prices on New Zealanders,” Robertson said.

He applauded the “gestures” supermarkets had taken with the price freeze and reductions, but said it was not “sufficient”.

“There’s a significant amount more that needs to be done in terms of reforming the supermarket sector, so that New Zealanders are paying a much fairer price when they’re at the supermarket.”

A Foodstuffs spokesperson said they were unable to comment on whether prices would rise after winter, but said it would “continue to do right by customers”.

Foodstuff’s list of essentials were 30 of the most bought products, both in stores and online, and featured frozen vegetables, oats, nappies, baby food, fresh fruit, cheese, eggs and pasta.

For some items there were multiple product options, which collectively added up to 110 items. The full list of brands and prices would be made public on Monday.

Countdown was criticised for its list of more than 600 essentials, which featured 117 herbs and spices, only three vegetables, and no meat appart from salmon and streaky bacon.

A Countdown spokesperson said it was hard to predict where inflation and prices would be in three months.