Inflation Nation: Rising food prices to add extra $50 to Kiwi households’ weekly grocery bill

Food and grocery prices are at record highs and they’re set to climb even higher.

Analysts and forecasters say food prices will peak around mid-year, before returning to current 10-year high rates by the end of the year.

While most would have got over the shock of paying $7 for a half a head of broccoli, $14 for a block of cheese and $15 for a single cauliflower in some shops by now, it is bread and other wheat-based products, dairy products and fast food that are next in line for substantial price hikes, according to ASB economists.

Wheat prices have hit new highs, as have petrol prices. Petrol this week hit a 40-year high.

The average Kiwi household can expect to pay at least $50 extra on the grocery shop each week, ASB estimates, as the Russian-Ukrainian conflict, freight prices and the impact of recent bad weather in the South Island flow through to the price of domestic products on supermarket shelves.

Mark Smith, senior economist at ASB, says 2022 will be a tough year for Kiwi households’ budgets.

The average spend on groceries per household is almost $300 a week. If food price inflation continues to rise further towards 10 per cent this year as expected, that could equate to approximately an additional extra $30 spent per week, not including petrol.

Petrol included – now over $3 per litre for most grades – and with households using on average 20 litres per week, the $1 increase per litre would add at least another $20 to weekly outgoings, taking increasing costs to an additional $50.

Smith, whose analysis focuses on the retail segment of the economy, told the Business Herald that the Russian-Ukrainian conflict was “providing quite a large increase in costs” not only for fuel prices, but freight too which would soon flow on through to the prices of grocery goods.

“I’m afraid the direction is firmly upwards,” Smith said.

Any grocery item “with a sizeable transport component” would go up in price as well, such as the likes of imported wine, cheese and pasta, he said.

The increase in minimum wage in April meant products and services with a large labour component were also likely to face price hikes, he said; that includes fast food, dining out at restaurants and takeaways.

“It’s a perfect storm of increases coming through, mainly from offshore influences, oil prices being a key one; it’s a major import for a lot of product used to transport, as well as other commodity prices. Labour issues as well over the supply of goods, so essentially prices are pretty much one way.

“There’s been a bunch of factors moving in the same direction and the Ukrainian situation has just topped that off – and provided another lift.”

Asked when Kiwis could catch a break from price hikes, Smith said increases were likely to continue on longer than the next six months.

“These increases look to be a lot more persistent [than previous forecasts]. It’s not great news for the household sector facing higher consumer prices and increasing interest rates.”

ASB expects consumer price inflation will exceed 7 per cent in the first half of this year and touch a high of 10 per cent before 2023.

While New Zealand produces more food than it consumes, many of its prices, including the price of dairy items, are benchmarked against international prices.

Stats NZ figures show annual food prices have increased the most in more than a decade, up 6.8 per cent from February 2021 to February 2022, while the wider inflation rate has hit a 30-year high.

This was the largest annual increase since July 2011 when prices increased 7.9 per cent.

The cost of living has grown by 5.2 per cent for the average household within a year.

On top of offshore influences and increasing labour and freight costs, lack of competition within the grocery sector is to blame for already sky-high prices set and controlled by the two major supermarkets.

The Government will soon begin regulating the $22 billion grocery sector in a bid to cool the cost of groceries. However, any implemented measures are not expected to bring prices down in the short to medium term.

Stats NZ’s Food Price Index shows that while monthly food prices fell 0.1 per cent in February – this following a 2.7 per cent rise in January – they rose in eight of the months of last year.

Fruit and vegetable prices increased by 17 per cent from February 2021 to February 2022, and meat, poultry, and fish prices were up 7.1 per cent for the same period. Grocery food prices (up 5.4 per cent), restaurant meals and ready-to-eat food prices (up 5.2 per cent) and non-alcoholic beverage prices (up 2.3 per cent) all also increased.

Stats NZ insights analyst Angus Crowe said food prices had begun creeping up from April 2021 after a “more muted” cycle of increasing food prices through 2018 and 2019.

Fruit and vegetable prices, particularly tomatoes, broccoli, lettuce, have driven overall food prices higher in recent months, along with dairy, bread, eggs, cereal and other grocery staples.

Recent food price growth trends, and historic ones, suggested that food prices were set to continue to rise, Crowe told the Herald.

Food is fast becoming unaffordable for many. A $100 shop gets you very little these days, and the sudden surge in prices is expected to significantly impact lower income households.

Shirley McCombe, general Manager of Bay Financial Mentors, said ASB’s estimate of an average $50 increase to Kiwis’ weekly shopping bill would in reality be a lot higher for many families, and could prove “crippling” for some.

Increasing prices meant Kiwis now needed to become more savvy when shopping, she said.

“You have to make every dollar work for you and have a plan to improve resilience during tough times,” McCombe says.

“You can actually save a lot of money by being mindful when you shop. It isn’t always about going without or reducing the quality of food. For example, you can pay $1.40 for a loaf of white toast bread or $3.29, that’s a saving of close to $2.00 on one product and I doubt anyone would notice the difference. Many places have community gardens and share their produce with the community. If you have neighbours that grow fruit and vegetables, ask if you can exchange produce to support each other.”

Her advice on how to make your money go further was to make a weekly budget and stick to by;

• Buying seasonal produce;

• Opt for home brands and cheaper alternatives to the big names;

• Use rice and pasta to bulk out meals;

• Make meal plans to minimise waste.

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