Cost of living crisis: Economists say 'perfect storm' to blame for grocery price rise

The pinch Kiwis are feeling in their back pocket when it comes to grocery prices looks set to continue with economists saying there is "no easy quick fix."

Food inflation has hit a 13-year-high, with fresh produce costing 8 percent more than the same time last year, Statistics NZ data showed on Tuesday. 

ANZ chief economist Sharon Zollner told Newshub on Wednesday a "perfect storm" is causing prices at the supermarket to rise. 

"Global food prices have risen with [Vladimir] Putin's invasion of Ukraine definitely not helping there, driving up the price of grain. Fuel prices have been higher so transport costs are higher. Shipping costs are definitely up," Zollner told AM. 

"Labour costs are higher ... then of course, there are wage increases all through the supply chain as well. There's no easy, quick fix to this, unfortunately." 

Zollner said the climate change crisis the world is facing means the outlook isn't a positive one for Kiwis. 

"Unfortunately with the likes of climate change, it does seem every month some major food growing region in the world is either underwater or burnt to a crisp, and it does seem likely to keep the relative price of food increasing," she said. 

"We are definitely hitting environmental limits, so clearly New Zealand's ability to produce more and more food is going to be limited and that's true of the whole world really." 

Zollner wasn't the only economist to have a grim outlook for the future, with Infometrics principal economist Brad Olsen agreeing with her.  

"At the moment, it doesn't look like there's much respite on the horizon at all," he told AM on Wednesday. 

"Input costs for suppliers themselves, so those who are creating and packaging up all of our foodstuffs, both internationally and here in New Zealand and sending them on to the supermarkets, they are being hit themselves and not starting to pass that cost."

ANZ chief economist Sharon Zollner said a "perfect storm" is causing prices at the supermarket to rise.
ANZ chief economist Sharon Zollner said a "perfect storm" is causing prices at the supermarket to rise. Photo credit: AM

Olsen and Zollner said inflation might've reached its peak in New Zealand, but overseas factors could see it remain high. 

"We're starting to see perhaps some better news on the general inflation front across the country … but when we look across the world, we know that those pressures remain," Olsen said. 

"Those pricing pressures are continuing to bite hard and certainly what we're seeing at the moment across the board, is that really it's reinforcing our expectations that inflation might have peaked, it might not go all that much higher, but it might well stay at these high levels for a much longer period of time, with inflation in New Zealand still above six percent by the end of this year," he said.  

Olsen said this will mean Kiwi households will continue to struggle over the coming months. 

"All of that suggests that Kiwi households are still going to feel the pinch when it comes to just putting the basics on the table and ensuring that they are able to buy the essentials and there will still be pain in New Zealand households' back pockets," he said. 

National Party leader Christopher Luxon told AM on Wednesday the Government is still failing on inflation as food prices skyrocket.  

"The real challenge here is, the Government is actually letting inflation get really entrenched in the economy at the moment, and, the longer it goes on, the worse it gets for everyday Kiwis just trying to get through," he said. 

National Party leader Christopher Luxon.
National Party leader Christopher Luxon. Photo credit: Newshub

Finance Minister Grant Robertson said in July New Zealand "is not alone in experiencing higher prices" with inflation above nine percent in the United Kingdom and the United States. 

"Global factors such as the ongoing impacts of the pandemic on supply chains and the war in Ukraine are affecting prices, particularly those for fuel and building materials, and this means demand is not being met, and having a sizeable effect on New Zealand households and businesses," Robertson said. 

"We recognise that this is a tough time for New Zealanders and the rise in the cost of living is making it hard for many. We have taken steps to ease some of that pressure on households, particularly those on lower incomes."

Steps the Government has tried to take to support New Zealanders amid the cost of living crisis included the $350 cost of living payment, the delivery of which was widely criticised, as well as fuel tax cuts and half-price public transport fares until the start of next year.