Food prices rise in April on more expensive eggs and dairy, inflation still contained

Christina Leung, ASB economist

New Zealand food prices rose in April, snapping two declines, as eggs and dairy products lifted grocery bills in the month, though inflation remained contained as the strong kiwi dollar kept a lid on imported prices.

The food price index advanced 0.6 percent in April following a 0.3 percent fall in March, according to Statistics New Zealand. Food prices increased 1.5 percent on an annual basis, accelerating from the 1.2 percent pace in March with all five components of the index rising in the year.

The monthly gain was led by a 1 percent gain in grocery food prices, as milk, cheese and eggs gained 1.4 percent, while bread and cereals rose 1 percent as did confectionary, nuts and snacks. On an annual basis, grocery prices rose 1 percent with milk, cheese and eggs making the biggest contribution, up 6.7 percent on a 28 percent lift in the price of butter.

The Reserve Bank is watching the pace of rising consumer prices, of which food prices contribute almost 19 percent, having flagged increased price pressures as a reason behind its shift to tighter monetary policy this year. Governor Graeme Wheeler has hiked interest rates 50 basis points since March in a bid to curb inflation, although April's first quarter consumers price index showed a slower-than-expected pace of inflation.

"The low level of food price inflation, along with the effects of the high New Zealand dollar on other areas of tradable inflation, are contributing to the overall contained inflation environment," Christina Leung, an ASB economist said in a note. "We expect rising inflation pressures will become more apparent later next year when the dampening influence of the high New Zealand dollar lessens, and economic activity ramps up and underpins a lift in underlying inflation."

Last week Wheeler signalled rate rises may not be as regular as previously assumed if the exchange rate remains strong. The high kiwi dollar weakens tradables inflation and would be a factor in the bank's view of the "extent and speed" of hikes in interest rates, Wheeler said at the time.

Today's figures show meat, poultry and fish prices rose 0.9 percent as beef prices rose 3.1 percent and pork advanced 4.5 percent. Meat prices led the annual rise, up 2.6 percent, with beef gaining 2.6 percent, lamb rising 9 percent and pork increasing 9.1 percent. Overall meat prices are 0.8 percent below the October peak, Statistics NZ said.

Fruit and vegetable prices rose 0.4 percent in April on seasonally higher prices for tomatoes and strawberries, and increased 0.9 percent in the year.

Restaurant meals and ready-to-eat food prices rose 0.3 percent in the month and gained 2.2 percent on an annual basis, with ready-to-eat food rising 2.4 percent and restaurant meals increasing 1.5 percent.

Prices of non-alcoholic beverages fell 0.8 percent in April, the only sub-group to decline in the month. On an annual basis, prices rose 1.6 percent, as coffee and tea increased 3 percent while soft drinks, juices and water gained 1.2 percent.

(BusinessDesk)

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