Annual food prices are easing, but could fuel costs force them to rise again?

Thursday, 12 October 2023

Food prices are finally showing signs of easing, but an economist warns higher costs for diesel and road user charges could force them back up.

The latest annual food price data from Stats NZ shows that, while food prices rose 8% in the year to September, they were slowly on the decline, falling 0.4% from August.

Annual food prices rose in all the broad categories measured, with grocery food prices the largest contributor, up 10.7%.

Restaurant meals and ready-to-eat food prices were up 8.6%, meat, poultry, and fish prices increased 6.9% and the cost of non-alcoholic beverage prices rose 8.3%.

The increase in fruit and vegetable prices was much smaller, at 1.4%.

Stats NZ consumer prices manager James Mitchell said fresh eggs, potato crisps, and lollies were the largest drivers within the grocery food category.

Monthly food prices fell 0.4% in September compared with the previous month, but after adjusting for seasonal effects, they were up 0.1%.

“Decreasing prices for fruit and vegetables, such as tomatoes, cucumbers, and lettuce, contributed the most to the overall monthly fall,” Mitchell said.

Food prices had lifted at an annual rate below 10% since August, which was the first time it had begun to decline.

Informetrics chief economist and director Gareth Kiernan said the decline in food prices in September was the result of the usual seasonal declines in fruit and vegetable prices.

“Nevertheless, the upward trend in food prices appears to be moderating. Grocery food prices have only risen a total of 0.3% over the last five months, and overall food prices excluding fruit and vegetables are up just 0.2% over the last three months.

“Both these series tend to be good indicators of the underlying trends in food prices and cost pressures.”

But moving forward, the “biggest risk” to food prices continuing to stabilise was the upward pressure on transport costs from higher diesel prices and the return to full road user charges, Kiernan said.

“In particular, the surge in diesel prices since July has been unexpected and is likely to flow through into higher costs for all goods and services with a transport component.”

ASB senior economist Mark Smith said about 49% of items rose in September, but that was compared to 50% of items seeing price falls.

”It suggests that soft household demand and greater consumer resistance to paying higher food pricing might be impacting food retail pricing decisions. If the latter is the case, this is encouraging for the future food price inflation outlook.

“It is our expectation that increased consumer resistance to paying higher prices and lower global food price inflation will see food price inflation continue to slow from here.”