Why has the food price rise hurt so much?

Wednesday, 24 January 2024

Food prices might have turned a corner but few people are likely to be feeling much relief yet.

Prices have risen a lot in recent years, forcing some shoppers to rethink their purchases and shop around for cheaper options to feed their families.

But why has it felt so tough, and where do we go from here?

How has the crunch gone on?

Food prices started to rise in earnest in the middle of 2021 as supply chain problems and pandemic concerns flowed into weather disruptions.

By the middle of last year, they were rising at a rate of more than 12%. That was the highest seen in decades.

But since July, the trend has started to slow and December was the fourth month of month-on-month decreases.

But prices are still much higher than they were. Since 2018, food prices are up 28%, while wages across the board are up 26.7%.

What’s increased the most?

Part of the reason why many families may feel hard hit is that the price of fruit and vegetables has increased at a rate far faster than the rest of the food groups.

If you’ve been trying to get five-plus-a-day into your kids, the cost of fresh fruit and vegetables has increased 51% over the past five years, compared to 19% to 30% for other food groups.

Stats NZ said the items that increased in price the most were pumpkin, up 118%, kumara, up 162.7%, and kiwifruit, up 153.8%.

Egg prices were up just under 120% and yoghurt just under 70%.

Which shoppers have been most affected?

A spokesperson for Woolworths said the number of items that shoppers typically bought in a trip to the supermarket had dropped since the cost of living pressure went on.

Its items-per-basket measure dropped by 8.9% in the first quarter of this financial year compared to the same time 12 months prior, after falling 14.3% in the first quarter of 2023.

While it’s true that lower-income families tend to spend more of their income on things such as food, it seems that people earning less have had increases that more closely kept up with the pace of food price rise.

Assuming that skill level broadly translates to pay, those in the highest-skilled jobs had pay rises over five years 13.2%, according to the Labour Cost Index, compared to 20.3% for those in the lowest skilled jobs.

“There’s a clear trend that lower-skilled jobs have received bigger pay increases over the last five years. That outcome is consistent with the 37.6% increase in the minimum wage over the same period, and the anecdotes from businesses that they have had to put up pay rates for lower-paid workers to maintain relativity between the minimum wage and people with some experience,” Infometrics chief forecaster Gareth Kiernan said.

“Bigger pay increases for lower-paid workers will have helped to mitigate some of the food cost pressures felt by these people, but the point remains that they spend a higher proportion of their income on food and generally have less capacity in their budgets to cope with big price increases.”

Where to from here?

While food price inflation is slowing, don’t expect prices to go backwards.

The best we can hope for over the longer term is that they stop shooting up.

But Kiernan said that was likely.

“In terms of what we see across the economy more broadly, inflation is heading back in the right direction, back to the 1% to 3% target band. There are risks around that, demand pressures from migration, conflict in the Red Sea and the effect that has on shipping costs, that type of thing, but it is heading down.”