What will food prices do next year?

Wednesday, 25 December 2024

Food inflation, staff shortages, soaring interest rates, and patchy customer demand are all pushing hospitality into survival mode.

After small increases in food prices this year, you could be thinking it’ll only get cheaper at the checkout from here.

But that unfortunately might not be the case thanks to a number of factors affecting food prices in the coming year.

Food prices rose about 1.3% in 2024, which was lower than normal, thanks to large drops in prices for fresh produce and soft conditions in the hospitality sector also dampened prices for takeaways and restaurant meals.

Westpac senior economist Satish Ranchhod said food prices account for about 20% of the average household’s spending.

“We think the coming year will see stronger food price inflation than we did in 2024,” Ranchhod said.

“Over 2025 we think food price inflation will go back to more normal levels of around 2.4%. In part that’s due to a strengthening outlook for commodity prices, like dairy and meat prices.

“We also think that household spending will pick up over the coming year thanks to falls in interest rates. That will be very important for what happens to prices in the hospitality sector.”

Food prices account for about 20% of the average household’s spending.

The hospitality sector accounted for 25% of households’ spending on food.

Coming into the new year there were a couple of things to keep an eye on when it came to food including global supply conditions, as poor growing conditions in other countries had pushed up prices for products such as chocolate and coffee.

Another was the exchange rate, with the New Zealand dollar dropping throughout December and the risk it sinks further.

“That would push up the prices of many goods New Zealand imports, including the prices of imported food items. It would also make it more attractive for New Zealand producers to send food overseas.”

Infometrics chief forecaster Gareth Kiernan said cost pressures had been weaker than normal so we could see some below-average price inflation across some food categories next year.

However, prices for some of our key export commodities, including milk and meat, continue to trend gradually upwards, largely as a result of weaker global production, he said.

“Higher export prices have benefits for our economy in terms of improved incomes for farmers, but they also mean that Kiwis pay more for dairy products and meat at the supermarket.”