Food prices rose 1.8 per cent in January, with the cost of fruit and vegetables going up 7.4 per cent, said Statistics New Zealand today.

This follows price falls of 0.8 per cent in December and a 0.6 per cent drop in November 2010.

Food prices usually rose in January, said Statistics NZ prices manager Chris Pike, with the seasonal increase in fruit and vegetable prices accounted for half of the 1.8 per cent monthly increase.

Fruit and vegetable prices were up 7.4 per cent. Fruit prices usually peak in January, said Stats NZ and prices rose 7.7 per cent with seasonal increases for strawberries, mandarins, kiwifruit, and apples.

Vegetable prices - which are above levels usually recorded at this time of year - rose 7.2 per cent in with higher prices for lettuce and potatoes. Lettuce prices were almost double those recorded a year earlier.

Grocery food prices rose 0.9 per cent in January 2011, with higher prices for chocolate (up 5.2 per cent) and yoghurt (up 3.7 per cent). Meat, poultry, and fish prices rose 1.7 per cent in January 2011, influenced by price rises for fresh chicken (up 9.3 per cent).

High international commodity prices would continue to underpin high domestic prices for bread and dairy products over coming months, ASB economist Chistina Leung said.

The effect of the recent floods in Australia on fruit and vegetable crops would also likely be a factor in keeping prices high, Leung said.

Overall food prices rose 1.8 per cent in January from December due to traditional rises in fruit and vegetable prices over the month, according to figures released today by Statistics New Zealand. Vegetable prices were above levels usually recorded for this time of year, Stats NZ said.

The 1.8 per cent rise was slightly higher than ASB's expectation, Leung said.

"As expected, strength in fruit and vegetable prices (which rose 7.4 per cent) led the increase. This reflected both the fact that it is a seasonally strong month for fruit and vegetable prices, and weather conditions which affected crop yields," she said.

"Higher international wheat and dairy prices show signs of flowing through to higher grocery prices which increased 0.9 per cent in January. We expect the strength in international commodity prices will continue to underpin higher prices for bread and dairy products at the retail level over the coming months.

"The effects of higher international commodity prices were also reflected in a 1.7 per cent increase in meat prices in January. International lamb prices have increased 35 per cent and beef prices 31 per cent in NZD terms over the past year.

"Meanwhile, the price of restaurant and takeaways again edged higher, increasing 0.4 per cent in January. Part of this is likely to reflect the recent recovery in wage inflation, given the dominance of labour as an input cost in this category," Leung said.

"We expect continued strength in food prices over the coming months, underpinned by higher international commodity prices and the effects of recent floods in Australia on fruit and vegetable crops," she said.

Food prices were up 3.8 per cent in January from the same time a year ago, Stats NZ said. In October 2010, GST was raised from 12.5 per cent to 15 per cent, meaning general prices rose by around 2.2 per cent because of the hike. The annual rise was down from 4.2 per cent in December 2010 from December 2009.

While January's annual growth was well below the double-digit growth seen over late 2008, food prices would still be a key factor to watch over 2011, Leung said.

In the year to January 2011, food prices rose 3.8 per cent, including a 2.2 per cent increase in October, when GST increased. All subgroups made upward contributions.

The most significant contributors were grocery food (up 3.9 per cent) and fruit and vegetables (up 8.1 per cent, with higher prices for milk, cheese, and eggs (up 8.9 per cent) and vegetables (up 10.2 per cent).

- HERALD ONLINE/ INTEREST.CO.NZ