Food prices up as retailers stop drink discounts

Chief executive of Nosh Food Market Clinton Beuvink shown last month launching the store's cheap milk promotion. Milk prices fell 1.5 per cent last month. Photo / Sarah Ivey

New Zealand food prices rose in February as retailers cut back on discounting soda, fruit juice, and energy drinks.

The food price index rose 0.6 per cent to 1263 in February, and is up 1.5 per cent from the same month a year earlier, according to Statistics New Zealand. That was led by a 3 per cent increase in non-alcoholic beverages, followed by a 1.7 per cent rise in the price of meat, poultry and fish, and a 0.6 per cent gain in grocery food prices.

"Inflation is currently very benign, and will comfortably remain around the bottom half of the RBNZ's target band for most of this year," ASB economist Jane Turner said in a note. "We continue to expect the RBNZ to leave the OCR unchanged until December 2012."

Last week, the Reserve Bank played up a tepid inflation outlook for the coming year, after the consumer prices index unexpected shrank in the 2011 December quarter.

The price of chicken pieces climbed 11 per cent, and was another food group that saw the removal of discounting.

The price of fruit and vegetables extended its decline, falling 2 per cent in February, with lower seasonally prices for pumpkins, apples, potatoes and onions. Fresh produce prices surged through the middle of last year after the storms in Queensland limited supply, and much of that was unwound through the latter part of last year.

Fresh milk was another group to fall in the month, down 1.5 per cent, while other milk products dropped 1.6 per cent, and cheese prices declined 1 per cent.

The price of local dairy products has been a hot issue over the past year, and prompted reviews by the Commerce Commission and a Parliamentary select committee.

In January, Fonterra said it would freeze local consumer prices for wholesalers, and would expect those savings to be passed on to end retail buyers. Domestic consumption accounts for about 5 per cent of Fonterra's supply.