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Food inflation is decreasing elsewhere – so why are New Zealand food prices not budging?
New Zealand food prices are still sitting at all-time highs.
But as we cringe at paying $7 for a lettuce we’re often reminded that many countries are doing it tough when it comes to food inflation – but are they really?
On Friday, the latest food price data for July will be revealed. In June, prices rose 12.5% year-on-year. That annual rate of change has been virtually unchanged all year.
The UK has experienced some of the worst food inflation in the world. In March the Office for National Statistics reported food prices had increased 19.2% in a year – a 45-year-high. But in May, it dropped to 18.4% and in June, 17.4%.
Prices only rose 0.4% between May and June 2023, compared with 1.2% in the same period in 2022.
The price jump was due to the invasion of Ukraine and poor crop seasons, while the decrease in prices was “driven by lower energy and commodity costs starting to filter through to lower prices of some staples including butter, milk, fruit and fish,” British Retail Consortium chief executive Helen Dickinson said.
Food inflation in the United States fell to a one-and-a-half year low of 5.7% year-on-year in June 2023, from 6.7% in the prior month and a peak of 11.4% in August 2022. Declines in egg and produce prices helped ease the overall inflation.
Across the ditch, annual food inflation in Australia eased to 7.5% in the June quarter, down from 8% in the March quarter and the peak of 9.2% in the December quarter, the Australian Bureau of Statistics reported.
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Meanwhile, New Zealand’s food prices have barely budged.
Dr Murat Ungor of the Department of Economics at University of Otago said he expected Friday’s data to be consistent with earlier months.
He said the supermarket duopoly and the size of the country contributed to higher food prices.
”A lack of competition in the supermarket sector is a factor behind elevated grocery and food prices.”
New Zealand has long been dominated by the supermarket duopoly with only Foodstuffs, which owns New World and Pak’nSave, and Woolworths, which owns Countdown, the major sellers of food.
“The scarcity of options and competitive pricing negatively impact consumers. Moreover, the situation discourages both smaller and larger grocery retailers from entering the market.”
Secondly, the size of New Zealand’s market played a role, he said.
The country’s small population resulted in higher distribution costs related to transportation, logistics, and warehousing.
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The supermarket duopoly and our small population contributed to higher costs at the checkout.
Infometrics chief executive Brad Olsen said poor weather had also pushed fruit and vegetable prices to extreme highs, which were affecting overall food prices.
Although the UK’s food price inflation was moderating, it was moderating from a faster rate of increase than ours, he said.
“The latest data from the UK shows food prices are up 17.4% per annum in July – yes that’s slower than the high of 19.2% per annum in March, but still considerably faster than NZ’s peak rate of 12.5%.
“Part of the shift in global food prices over time has been driven by higher oil and grain prices, that haven’t had as much of an impact domestically, but has indirectly raised input costs for a number of goods. There’s still some pockets of pricing pressures internationally, with sugar, cocoa, and rice prices recently heading higher.”
ASB senior economist Mark Smith said the bank’s economists were expecting a 1% monthly increase in overall food prices in July, given seasonality, residual cyclone impacts and rising costs.
“Food prices will still likely rise around 2% in Q3,” Smith said.
They expected annual food price inflation to cool to about 11%.
”Weaker global food commodity prices, which lead local prices by six to nine months, and growing consumer resistance to higher food prices should see price rises cool.
“Annual NZ food price inflation is expected to move into the low single digits for 2024.”
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