Global prices for NZ food exports are coming down, but no relief for local shoppers

Sunday, 13 November 2022

Food prices increased at the fastest annual rate in 14 years in October. (File photo)

Global prices for New Zealand dairy and meat are coming back to more normal levels after soaring during the pandemic but shoppers here may not see the full benefit for awhile due to the lower currency.

After their bumper run over the past 18 months, global commodity prices in US dollar terms have pulled back to more normal levels, mostly due to weaker demand from China, according to ASB’s weekly commodity report.

ASB’s US dollar Commodity Price Index is now at its lowest level in about 21 months, and is sitting only about 4% above its long-run average. That’s in contrast to its peak earlier in the year, when prices in US dollar terms were 25% to 30% above normal levels.

But a decline in the New Zealand dollar is holding up prices for local exporters.

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While US dollar commodity prices have eased 18% since their peak in March, ASB noted the New Zealand dollar has fallen 13% over the same period, offsetting the vast bulk of that decline in New Zealand dollar terms.

“As global food prices fall in foreign currency terms, that will potentially have some impact in time, but the other dimension is that the New Zealand dollar has softened as well so we may not immediately pick up the benefits of any global falls in food prices,” said ASB chief economist Nick Tuffley.

“We should see food price inflation start to slow down, but the pace or the timing of it is going to be influenced by the New Zealand dollar and the challenge is that that's been quite weak recently.”

A stronger New Zealand dollar would also help reduce prices for imported foods, he noted.

The New Zealand dollar recently traded at US58.90 cents, and ASB sees it sinking further to a low of about US52c as the US dollar strengthens, before creeping up next year as the global economy picks up.

“We should be seeing our food price inflation slowing next year,” Tuffley said.

A report from Stats NZ last week showed food prices increased 10.1% in October from the same month last year, the largest jump in 14 years.