Food prices start to bite

Waikato Times

WHITE GOLD: Milk prices skyrocketed in July, up 10 per cent, and other food prices also took a hike, Statistics NZ figures show.

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Milk prices skyrocketed in July, up 10 per cent, Statistics New Zealand figues show, and other food prices also took a hike.

The worldwide boom in dairy prices, which has boosted New Zealand's export income, played a big part in the 1.2 per cent rise in food prices in July.

Food prices were up 3.4 per cent for the year to July, Statistics NZ said.

Bank of New Zealand economists said global food price inflation was hitting home in New Zealand.

"Brace yourself for more," BNZ said yesterday.

The rise in food costs pointed to September quarter general inflation of 0.8 per cent, higher than the Reserve Bank expected.

"We still see inflation pushing back up towards 3 per cent by the turn of the year," BNZ said.

Inflation could be worse if the Kiwi dollar fell further, lifting the cost of imports.

However, the bank said Reserve Bank governor Alan Bollard would be smiling at news of a softer housing market, even if it had arrived a few years after the central bank first forecast it.

"At long last, the housing market looks to be on its last legs," BNZ said.

It pointed to the 14 per cent slide in June house sales volumes compared with the same month last year.

The lower house sales volumes suggested annual house price inflation would soon be down to single digits.

But even if the housing market was running out of puff and the international markets had the jitters, BNZ said the Reserve Bank could not be sure inflation pressures were on the way down.

For example, there was a massive amount of dairy farm income yet to hit the economy from high world commodity prices, and a big chunk of extra government spending was also coming.

The economy also faced a severe lack of labour, all adding to inflation pressures.

- With NZPA