Saturday, December 2, 2023

Food inflation jumps 12.5%, highest in 36 years

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Highest annual change since right after GST was introduced.
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Statistics New Zealand reported annual food inflation was up 12.5% in June, driven by a 22% jump in fruit and vegetable prices and a 12.8% hike in groceries.

That matched April’s percentage change and is the highest annual change to the food price index since September 1987, when it was 15.8%. GST was introduced in October 1986 at a 10% rate.

Key drivers for fruits and vegetables were tomatoes, capsicums and lettuce, while grocery items like fresh eggs, yoghurt and cheddar cheese bit the most into supermarket spending.

Month-on-month prices were up 1.6%, which on a seasonally adjusted basis was up 0.9%.

ANZ Bank economist Henry Russell said the food price surge had continued following the Auckland flooding events and Cyclone Gabrielle, with a poor run of weather hampering production and strained transport infrastructure impacting access to markets. 

In the bank’s June quarter inflation preview, Russell said the climate transition to El Niño might provide some reprieve, bringing drier conditions to the east, but for now, price pressures “remain intense”. 

The bank expects the 2.0% quarter-on-quarter increase in food prices for the three months to June to add 0.4% points to quarterly headline inflation for the current quarter.

The rent price index also rose by 3.9% year-on-year for the quarter, attributed partially to disruption from Auckland flooding events but also the surge in migration. ANZ expects the rise to add about 0.1% to July’s consumer price index (CPI) number.

Meanwhile, ASB senior economist Kim Mund is pegging a 0.9% quarterly increase in CPI, with annual inflation falling below 6% for the first time since December 2021.

However, signs that the housing market is stabilising present an “upside risk” to the outlook, while rising mortgage interest rates, population growth and cyclone-related damage could also push rents higher.

Non-tradable inflation is also proving sticky, she said, and while NZ is seeing “tentative signs” that the labour market is cooling, it’s expected to take time for that to translate into a meaningful slowdown in wage inflation.

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