Annual food price increases the highest in two years, pushed up further by the GST rise

Food prices rose 1.4% in June 2011 in line with expectations, and reflecting a seasonal rise in vegetable prices. Annually, food prices were up 7.5% on a year earlier, Statistics New Zealand said today - although 2.2% of that relates to the GST increase in October 2010.

The last time food prices rose at this annual rate was July June 2009 when they rose 8.4% on an annual basis.

Fruit and vegetables rose the most in June, up 12.2%. They rose 1.4% from the previous month, a similar rise (+1.3%) in the same month a year ago.

This rise in fruit and vegetable prices was influenced by price rises for tomatoes (up 57%), capsicums (up 44%), and cucumber (up 36%). Lettuce also experienced a seasonal increase, rising 43%, following a 46% increase in May.

"Tomato and capsicum prices rose more than they usually do in June, reflecting a supply shortage caused by the January floods in Queensland," Statistics NZ prices manager Chris Pike said.

In June, meat, poultry, and fish prices fell 3.2% from their peak in May. Four of the five most significant price falls in the June food price index were from the meat, poultry, and fish. Poultry prices fell (down 8.0%), with fresh chicken prices down 10.4%. Beef prices also fell (down 3.0%), influenced by an increase in the level of discounting on porterhouse/sirloin beef steak (down 7.1%).

Lamb prices rose 1.2% and are now at their highest-recorded level.

Vegetable prices rose 23.5% and fresh milk prices rose 9.4% in the year to June 2011. All annual price increases in this report include the October 2010 GST change.

"Leaving aside the GST increase, higher global soft commodity prices has largely underpinned the increase in food prices over the past year," said Christina Leung, an economist at ASB Bank. "While there has been some easing in soft commodity prices recently, prices elevated given strong global demand."

"We expect strong global soft commodity prices will continue to flow through to prices at the retail level in NZ over the remainder of 2011."

(Updated adding ASB Bank comments.)