A new normal? Why food prices may stay high

Thursday, 19 June 2025

Staples like olive oil have seen some of the steepest price hikes in the past year.

EXPLAINER: If you feel like your grocery bill just keeps climbing, you're not imagining it.

New figures from Stats NZ show food prices rose 4.4% in the year to May 2025, with staples like butter up more than 50%.

These numbers reflect what many households are feeling each week at the checkout. And while it might seem like everything is getting more expensive, the picture is more nuanced.

Some products are driving up the average, while others have levelled off. So when might things start to ease, and what’s keeping costs so high?

Why are prices going up?

'It's a tricky one,' Infometrics chief executive and principal economist Brad Olsen said. 'What we're seeing at the moment is a number of key products are continuing to sort of drive overall prices up.'

Those key products include dairy, meat, coffee, chocolate and olive oil. They’re all goods that have seen significant supply issues globally.

For instance, poor weather in Brazil and Vietnam has dented coffee harvests, and cocoa bean production in the Ivory Coast has suffered from drought.

In New Zealand, we’re not immune. Despite being a major dairy producer, local prices reflect international trends. 'Higher prices for dairy are challenging for households, but they are also supporting New Zealand's farmers,' Olsen said.

The price spikes for visible items like butter and meat are making the situation feel worse than the average numbers suggest, he said.

'Once you start to dig into the numbers, it's becoming clearer that it's not quite as broad base of an increase… as what you had sort of say back in 2021or 2022,' Olsen said.

Chocolate has become more expensive as global cocoa supplies tighten.

In other words, it's not that everything's going up, but some common items are going up by a lot. And that's what shoppers notice.

So when might prices level out?

'A lot of it will turn on whether or not you see an increase in supply of various products coming through across the world,' Olsen said.

There are signs that some costs, like olive oil, may be stabilising as global supply improves. But for items like dairy and meat, supply constraints remain tight.

Olsen says it's unlikely prices will drop significantly. 'You might see some natural moderation… but for the moment, it seems unlikely that you'd see prices immediately return to normal.'

Brad Olsen, Infometrics chief executive and principal economist, says global supply issues are keeping pressure on key goods like dairy and meat.

Could New Zealand do more to curb the rises? 'We're a little bit caught by the global market,' Olsen said.

Short-term fixes like subsidies are economically unwise, and structural reforms take time.

Some bad news

There may be more price pressure ahead. Conflict in the Middle East is pushing up global oil prices, which could mean higher fuel costs in New Zealand.

'We've had a 10% increase in overseas international oil prices because of the Israel Iran conflict. At the moment, that will likely flow through to the pump price here in New Zealand.'

Another concern is that BNZ economists now expect inflation to creep above the Reserve Bank’s 1% to 3% target range later this year, with a 3.1% annual rise forecast by September.

That would increase pressure on household budgets and could prompt further action from the Reserve Bank.

Butter prices have soared more than 50% in the past year, making the dairy staple a symbol of rising grocery costs.

Still, some consumers are responding by changing what they buy.

'When olive oil prices were increasing… consumers started to substitute olive oil for another fat, which might well have been butter at that time,' Olsen said.

Now with butter rising, shoppers may look to margarine or simply cut back elsewhere.

And some good news

One of the few areas offering some relief is housing.

Rent increases have slowed to their lowest level in a decade, rising just 2.8% in the past year.

That’s a sharp change from the pattern seen since 2011, when rent inflation was consistently higher.

It suggests that at least one key cost for households is easing, which could give families more breathing room even as food prices bite.

Kiwis with home loans may also find they have more cash in the bank as lower interest rates reduce mortgage repayments.

So, are we better off than a year ago?

'It's very dependent, household by household,' Olsen said.

Mortgage rates, income changes, petrol prices and job stability all play a part. But in general, inflation isn't as extreme as it was in 2022, even if we haven't found a new 'normal' yet.

“We really are still trying to establish what the new normal looks like. What's the new Goldilocks zone for the economy, prices and everything else, and we haven't found it yet.”

Until global supplies improve or demand cools, shoppers should brace for more of the same: a grocery bill that keeps pushing limits, even if not every item is to blame.