High international commodity prices will continue to underpin high domestic prices for bread and dairy products over coming months, ASB economist Chistina Leung says.
The effect of the recent floods in Australia on fruit and vegetable crops would also likely be a factor in keeping prices high, Leung said.
Overall food prices rose 1.8% in January from December due to traditional rises in fruit and vegetable prices over the month, according to figures realeased today by Statistics New Zealand. Vegetable prices were above levels usually recorded for this time of year, Stats NZ said.
The 1.8% rise was slightly higher than ASB's expectation, Leung said.
"As expected, strength in fruit and vegetable prices (which rose 7.4%) led the increase. This reflected both the fact that it is a seasonally strong month for fruit and vegetable prices, and weather conditions which affected crop yields," she said.
"Higher international wheat and dairy prices show signs of flowing through to higher grocery prices which increased 0.9% in January. We expect the strength in international commodity prices will continue to underpin higher prices for bread and dairy products at the retail level over the coming months.
"The effects of higher international commodity prices were also reflected in a 1.7% increase in meat prices in January. International lamb prices have increased 35% and beef prices 31% in NZD terms over the past year.
"Meanwhile, the price of restaurant and takeaways again edged higher, increasing 0.4% in January. Part of this is likely to reflect the recent recovery in wage inflation, given the dominance of labour as an input cost in this category," Leung said.
"We expect continued strength in food prices over the coming months, underpinned by higher international commodity prices and the effects of recent floods in Australia on fruit and vegetable crops," she said.
Food prices were up 3.8% in January from the same time a year ago, Stats NZ said. In October 2010, GST was raised from 12.5% to 15%, meaning general prices rose by around 2.2% because of the hike. The annual rise was down from 4.2% in December 2010 from December 2009.
While January's annual growth was well below the double-digit growth seen over late 2008, food prices would still be a key factor to watch over 2011, Leung said.
See the release from Stats NZ below:
Food prices rose 1.8 percent in the January 2011 month, Statistics New Zealand said today. This follows price falls of 0.8 percent in December and 0.6 percent in November 2010. All five subgroups made upward contributions to the January 2011 increase.
“Food prices usually rise in January. A seasonal increase in fruit and vegetable prices accounted for half of the 1.8 percent increase in food prices in January this year,” Statistics New Zealand prices manager Chris Pike said.
The fruit and vegetables subgroup was the key contributor to higher food prices in January 2011, increasing 7.4 percent. Fruit prices usually peak in January, and prices rose 7.7 percent in January 2011 with seasonal increases for strawberries, mandarins, kiwifruit, and apples.
Vegetable prices – which are above levels usually recorded at this time of year – rose 7.2 percent in January 2011 with higher prices for lettuce and potatoes. Lettuce prices were almost double those recorded a year earlier.
Grocery food prices rose 0.9 percent in January 2011, with higher prices for chocolate (up 5.2 percent) and yoghurt (up 3.7 percent). Meat, poultry, and fish prices rose 1.7 percent in January 2011, influenced by price rises for fresh chicken (up 9.3 percent).
In the year to January 2011, food prices rose 3.8 percent, including a 2.2 percent increase in October, when goods and services tax (GST) rose.
All subgroups made upward contributions. The most significant contributors were grocery food (up 3.9 percent) and fruit and vegetables (up 8.1 percent), with higher prices for milk, cheese, and eggs (up 8.9 percent) and vegetables (up 10.2 percent).
(Updates include ASB economist comment, new head paras)
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