Global drivers of food prices may have peaked but New Zealand factors still fuelling costs - Foodstuffs

The international drivers behind the country's soaring food prices may have finally peaked, Foodstuffs says.

But before we expect to see prices start to tumble, the grocery retailer warned pressures back in New Zealand continue to fuel cost increases.

Statistics NZ released its food price index on Wednesday finding prices rose 12.1 percent in March compared to the same time last year. In the year to May, fruit and vegetable prices alone increased by a whopping 18.4 percent.

But there are signs that food price inflation may have peaked.

The annual food inflation rate slightly eased back from 12.5 percent in April to 12.1 percent. While fruit and vege prices were up significantly year-on-year, they dipped 2.5 percent month-on-month and monthly grocery food prices fell 0.1 percent.

ASB said it was encouraging that the price rises were not widespread. It said about 56 percent of items rose in May and 42 percent fell.

"It is our hope that annual food price inflation has peaked (or is close to it) given lower global food commodity prices," ASB senior economist Mark Smith said. 

"Today's data provides some encouraging signs but sub 3 percent annual food price inflation looks a long way away."

Foodstuffs NZ managing director Chris Quin said global indicators are pointing to some of the main drivers of food price inflation reaching its peak.   

"The increase in the cost of goods we buy to put on shelf and the retail price to our customers both came in under 10 percent this month," Quin said in a statement.

He said international commodity prices are easing off the record highs reached in 2022, particularly for key ingredients like vegetable oil and wheat. This is coupled with most international shipping costs getting close to pre-COVID levels.

Fuel prices also dropped slightly in May but the Government's fuel subsidy is due to finish at the end of June which will impact diesel prices and road user charges.  

"While food price inflation remains high, we're hopeful we've seen the crest of the wave of record cost increases from suppliers that we've been experiencing over the last 18 months," Quin said. 

"In New Zealand, wages and weather are still fueling cost increases."
"In New Zealand, wages and weather are still fueling cost increases." Photo credit: Getty Images

But when it comes to cost increases there are drivers fuelling it at home, Quin said.

"It is international cost pressures that are seeing an overall downward trend, but in New Zealand wages and weather are still fuelling cost increases," Quin said. 

"This could see the cost of imported goods start to moderate ahead of a slowdown in cost increases on domestically produced grocery items," he said.

These cost pressures include the Government raising New Zealand's minimum wage in April and bad weather affecting crops, including tomatoes, leafy greens and pumpkins.

"At the start of this year, we thought we would be able to see the trajectory of food price inflation by the end of Q1. Unforeseen weather events have meant it's taking longer to get a clearer picture but it's encouraging to see signs of moderating across the industry," Quin said.

While food prices may be signalling their peak, annual food price inflation is still above 12 percent and close to 30-year highs. 

For now, Quin said food prices remain a concern for customers and many have reported cutting back on fresh fruit, veggies and meat, as well as shopping around to get the best deals.