Food prices flat in Feb from Jan but up 5.3% from a year ago, Statistics New Zealand says

Food prices in February rose 5.3% from the same month a year ago, the highest annual rise for any month since July 2009, figures released by Statistics New Zealand show.

Annual food price inflation was notoriously high through 2008 and the first half of 2009, hitting 10.8% in September 2008. However annual growth slowed to marginal increases or falls during most of 2010 before taking off again in the final three months of the year, partly due to a 2.2% rise in general prices due to the increase in GST on October 1.

Some local food prices have been pushed up by higher global commodity prices, with local effects seen in the increased media and public outrage at the price of milk in New Zealand. This led Fonterra to announce last month it would freeze the price of domestic wholesale milk for the rest of the year.

Despite the 5.3% annual rise, seasonally adjusted figures show overall food prices were flat in February from January. ASB economist Christina Leung said this suggested the Reserve Bank had some breathing space in terms of inflationary pressures, although higher global commodity prices would underpin local retail food prices through the year.

The Reserve Bank cut the Official Cash Rate by 50 basis points to 2.5% yesterday, saying it would have to keep a close eye on inflation as the rebuilding of Christchurch gets underway following the devastating earthquake on February 22.

"The key surprises were in the declines in fruit and vegetable prices and meat prices," Leung said on the monthly figures between January and February.

"Fruit and vegetable prices are typically volatile from month to month, and the 1.7% decline reflects some payback from the strong increase in the previous month. Meanwhile, the 0.5% decline in meat prices was driven by discounting of chicken in February. Partly offsetting that was an increase in lamb prices, reflecting high lamb prices globally," Leung said.

"Higher global commodity prices also flowed through to a 0.6% increase in grocery prices. In particular, higher dairy prices in the international markets were reflected in higher prices for dairy products such as milk and yogurt," she said.

"Today’s data continues to suggest that for now the RBNZ has breathing space on the inflation front. However, we expect higher global soft commodity prices will underpin food prices at the retail level over the coming year. In addition, with fuel costs being a key part of costs for food producers, the continued rise in fuel prices in recent months is also likely to underpin food price inflation. Rising food and petrol prices have the potential to restrain household discretionary spending over 2011."

See the release from Stats NZ:

Food prices were flat (up 0.1 percent) in the February 2011 month, but up 5.3 percent on a year earlier, Statistics New Zealand said today.

“A seasonal fall in fruit and vegetable prices in February offset rises in grocery food prices, particularly for dairy products,” Statistics New Zealand prices manager Chris Pike said.

Grocery food prices rose 0.6 percent in February 2011, with higher prices for milk, cheese, and eggs (up 1.5 percent) being responsible for nearly two-thirds of the grocery food increase. Yogurt prices rose 4.5 percent and fresh milk prices rose 1.1 percent. Butter prices rose 3.5 percent.

The fruit and vegetables subgroup had the largest impact on food prices in February, falling 1.7 percent. This was influenced by a seasonal fall in apple prices (down 21.3 percent). The fruit and vegetables subgroup usually falls in February.

In the year to February 2011, food prices increased 5.3 percent. This included a 2.2 percent increase in October, when the goods and services tax rose. All subgroups made upward contributions for the year.

The most significant contributors were grocery food (up 5.4 percent) and fruit and vegetables (up 10.1 percent), with higher prices for milk, cheese, and eggs (up 9.5 percent) and vegetables (up 11.5 percent).

Most prices were collected before the 22 February Christchurch earthquake.