GDP and Inflation

Food prices rise again but food still cheaper than last year

Tuesday August 28, 2012 Kelly Dustow

Since June this year, food prices have increased by 0.2 percent according to Statistics New Zealand’s latest release of its food price index.  The most significant increase came from fruit and vegetable prices in May and June.

As shown in the figure below, fruit and vegetables have increased by 4.4 percent from last month.



In particular, the rise in fruit and vegetables came from vegetables which rose 6.3 percent, while fruit rose 1.3 percent. Increases included lettuce (up 41 percent), capsicums (up 25 percent), cabbage (up 36.6 percent) and strawberries (up 23 percent).  The price of oranges came down since June, with 17.8 percent.  During the same period, the price of meat, poultry and fish; grocery food; and restaurant and ready to eat meals all decreased. 


Despite food prices increasing over the past month, food prices are still lower than last year.  Food prices in July 2012 were 1.8 percent lower than the same time last year.  The figure below shows the annual changes in food prices of the four subgroups over the past year.



Prices for all sub-groups have declined except for restaurant and ready-to-eat foods which have increased by 1.4 percent over the past year.  Most of the decline in food prices came from lower fruit and vegetable prices over the past year, despite the increase in May and June this year.  On year earlier levels, significant declines have been experienced in vegetables (down 12.3 percent), mutton, lamb and hogget (down 23.6 percent) and oils and fats (down 11.0 percent).


Declining food prices in New Zealand is consistent with the overall trend in worldwide food prices.  According to the FAO World Price Index, food prices for July have declined by 7.83 percent on year earlier levels.  The figure below shows the change in food prices for July 2012 of major subgroups since July 2011.



The most significant decline in world food prices since July last year came from dairy (down 24.1 percent), followed by sugar, and oils.  Cereal prices have increased since July last year, due to severe drought conditions in the United States and worsening production prospects from Russia.


Increased cereal prices will cause concern particularly for farmers overseas with cereal being a key input into agricultural feed.  Increased cereal prices and adverse weather internationally may present New Zealand and Australian farmers with increased opportunities in the international meat market.