New data shows supply costs still increasing but Brad Olsen says 'tide is turning' on supermarket prices

A leading economist says supermarket prices are going to remain high for the foreseeable future but there is hope on the horizon for Kiwis. 

It comes as the latest Infometrics-Foodstuffs New Zealand Grocery Supplier Cost Index (GSCI) showed an annual increase of 8.8 percent in what suppliers charged supermarkets for goods in May.

The data showed in May nearly 5600 items increased in cost, compared to fewer than 1200 in the same month in 2020 and around 2200 in May 2019.

May 2023 also saw over 12 percent of cost changes increasing by more than 20 percent, compared to nine percent of products increasing by the same amount in the same month in 2020, and only seven percent in May 2019. 

Infometrics Principal Economist Brad Olsen told AM Early on Monday it's the first time the GSCI has been below 10 percent in "quite a few months" and shows a more restrained and "normalising picture" of cost increases. 

"Under no illusions, is this a fall in costs or fall in prices, it's just not going up at such a frantic pace," Olsen told AM Early host Michael O'Keeffe. 

"We're not seeing those supply costs increasing at quite as frantic of a pace and although we're not expecting that food prices become a lot cheaper any time soon, we are hopeful that these trends might imply that in the next few months, we might see not quite as fast increases when it comes to supermarket prices." 

Key areas that are affecting prices are global and domestic pricing pressures, which are still high, Olsen said.

"There does still seem to be a lot of momentum behind these cost increases... and given we're still in what seems to be a very intense inflationary environment, you sort of take the win when you start to see that shift in momentum," he said. 

The shift in momentum is down to things like diesel prices starting to moderate recently, global food prices taking a "step back" and on-farm costs for New Zealand producers are still at "eye-watering" growth rates of around 11 percent but not the 15 percent per annum they use to be, Olsen said.  

"So still a lot of those intense pricing and cost pressures coming through and of course, if you're starting to see that on-farm, if you're still seeing higher wage costs, if you're seeing the likes of packaging and repairs continue to cost more, of course, those higher costs are passed through the supply chain and that's what's continuing to come through when it comes to New Zealand food prices," Olsen explained. 

The latest figures show a definite "slowing of momentum" Olsen said but added it's still in the top quarter of all increases that we've seen, so we're "not out of the woods yet" but the "tide is turning". 

"We have had a bit of a preliminary look at the food price index and some of the largest increases in there are likely to fall out in the comparison period in the next few months," Olsen told AM Early. 

"Again, that doesn't mean that anyone will see cheaper food prices… but you would be hoping that in the second half of 2023 on the current numbers, that may be when people go into the supermarket in that second half of the year they might be going, well, that's still expensive, but it hasn't increased quite as much between shops as it has in previous times. 

"All of that being said, you know people are still making some very difficult decisions about how to put food on the table. There are not really any particularly cheap areas anymore." 

Watch the full interview with Brad Olsen in the video above.