Food prices rose 2.1% in January after five months in decline (Update 2)

There has been an increase of 2.1% for food prices in the January 2010 month, after five months in decline, Statistics New Zealand said today. Prices are up 2.2% from a year ago. (Update 1 includes chart. Update 2 includes economist reaction.) Significant contributions to the rise in food prices came from higher prices in grocery food, fruit and vegetables, meat, poultry and fish, Stats NZ said. Tomato prices rose 22%, chicken meat prices rose 7.8% and milk prices rose 5.1%, while restaurant meal prices rose just 0.3%. See the full release below:

Food prices increased 2.1 percent in the January 2010 month, Statistics New Zealand said today. This follows five consecutive monthly falls in the food price index (FPI) and prices have now returned to levels last seen in September 2009. Significant contributions to the increase in January came from higher prices for grocery food, fruit and vegetables, and meat, poultry, and fish. Grocery food prices rose 1.8 percent in January, ending a run of five consecutive monthly falls. Dairy prices rose in January, with higher prices for milk, yoghurt, butter, and cheese. "Milk prices rose 5.1 percent in January to levels last seen in September 2008," prices manager Chris Pike said. Fruit and vegetable prices rose 4.8 percent, with higher prices for tomatoes and seasonal price rises for kiwifruit, broccoli, and apples. Meat, poultry, and fish prices rose 3.3 percent, with higher prices for chicken. For the year to January 2010, food prices rose 2.2 percent. Four subgroups recorded annual increases:grocery food (up 1.7 percent), non-alcoholic beverages (up 6.2 percent), restaurant meals and ready-to eat food (up 2.8 percent), and meat, poultry, and fish (up 3.0 percent). The fruit and vegetable subgroup fell 1.0 percent in the year to January 2010. "Although food prices are now 2.2 percent higher than a year ago, they are 12.0 percent higher than two years ago," Mr Pike said.

The Food Price Index rose by 2.1% in the January month, much stronger than our expectations of a 0.1% increase. There were increases across all groups, with fruit and vegetable prices increasing 4.8%. This group tends to be rather volatile and driven around by the weather. The strong increase in grocery prices, of 1.8%, largely reflected increases in the price of dairy products and points to stronger underlying food price inflation. Furthermore, meat prices increased 3.3%, reflecting the flow-through of higher international meat prices late last year to the domestic retail level. Meanwhile, takeaways prices increased 0.3%, likely reflecting subdued wage inflation. Overall, today's numbers indicate the rebound in international commodity prices in recent months has flowed through to the retail level at a greater extent than we expected. This, combined with the increase in food and vegetable prices means that food price inflation is stronger than we expected and leads us to revise Q1 CPI from 0.4% to 0.7%.