Decade high food price rise points to higher inflation peak

Food prices have soared by the highest rate in 11 years. Photo / Getty Images

Annual food prices rose 6.8 per cent in February 2022 compared with February 2021, Stats NZ said today.

This was the largest annual increase since July 2011 when prices increased 7.9 per cent.

That 2011 increase reflected the National Government's hike in GST.

Looking through that policy-driven peak, the last time food prices rose so fast was nearly 14 years ago, in 2008.

"Fruit and vegetables were the largest contributors to the annual movement, mainly influenced by tomatoes, broccoli and iceberg lettuce," food prices lead analyst Angus Crowe said.

"Today's February food price data was stronger than expected, with annual food price inflation at its highest in more than a decade and highlighting the widespread drivers of high food price inflation," said ASB senior economist Mark Smith.

"In combination with higher fuel prices, this has pushed up our near-term inflation forecasts, with annual CPI inflation set to peak close to 7.5 per cent in the June 2022 quarter.

"This is the highest since 1990. The direction of revisions to our inflation forecasts has been one largely way (upwards) and this could well continue."

ASB now sees annual inflation ending 2022 at 5.7 per cent, and not back into the Reserve Bank's 1-3 per cent target band until 2024.

"Risks are tilted towards high inflation being more ingrained, which will clearly trouble the RBNZ," Smith said.

Two-litre bottles of standard milk, eat-in lunch meals, and 1-kilo blocks of mild cheese also contributed to the annual increase. These were partly offset by decreasing prices for kumara, avocado, and crackers.

On a month-by-month basis the overall food price index actually dipped 0.1 per cent from January.

But that reflected seasonal changes in the price of fresh produce. When adjusted for seasonality the index rose 0.4 per cent for the month.

Topline consumer price inflation for 2021 is currently sitting at 5.9 per cent - a 30-year high if we look through the 2011 GST hike.

But there are concerns it will go much higher as the war in Ukraine has led to a spike in commodity prices for oil, wheat and a number of key industrial products.

This week ANZ economists warned that inflation could now peak at 7.4 per cent in the second quarter, rather than the RBNZ's forecast of a 6.6 per cent peak in the current first quarter.