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Food prices post largest decline since 1957

Tuesday 13th July 2010

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New Zealand food prices posted their biggest annual decline since 1957 in the year through June, ending a two-year surge that was driven by increased global commodity costs.

Prices fell 2% in the latest 12 months, even as they rose 1.3% in the month of June, according to Statistics New Zealand. The decline comes on the back of a large fall in global commodity food prices. In 2007 and 2008 annual food price inflation increased almost 17%.

The government statistician has begun releasing the food price data ahead of the quarterly consumer price index, due on Friday, which is expected to show inflation remained relatively benign in the second quarter. Food is expected to be one of weakening groups in the CPI, keeping it to a quarterly pace of 0.5% from 0.4% in the first three months of the year.

“The 1.3% increase in June food prices was marginally ahead of what we had penciled into our bottom-up CPI model,” said Goldman Sachs JBWere economist Philip Borkin. “However, this is not enough to alter our headline expectations. We continue to look for the June quarter CPI to have risen 0.4%, taking annual inflation to 1.9% on a year on year basis.”

The 2% annual fall in food prices was driven by three main subgroups Statistics said. Fruit and vegetable prices fell 9.2%, meat, poultry and fish dropped 3.9% and grocery food eased back 1.4%.

“Based on recent growth in New Zealand dollar commodity prices, despite them now easing off their peaks, annual food price inflation could potentially be back above 10% year on year by 2011,” Borkin said.

The headline figures disguise the typical June rise in vegetable prices, which increased 15.9% in June compared to May, as winter weather slows growing conditions. Vegetable prices this year are well below the record levels seen in June last year however.

Tomato prices increased 44% in June and lettuce was up 77%, as both products followed their typical seasonal price pattern.

For June 2010, meat, poultry and fish rose 2.7%, with porterhouse and sirloin beef steak prices jumping 14.3% from discounted May levels. The restaurant meals and ready-to-eat food subgroup rose 0.3%.

The non-alcoholic beverages, as well as the grocery food subgroups both fell 0.8% in June, with the latter group largely reflecting lower prices for chocolate-related products.

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