Falling dairy prices are weighing on inflation, with the price of food falling for the second straight month.
Statistics New Zealand's latest food price index for the month of June showed a 1.4 per cent increase over May, mainly driven by seasonal changes in the price of fruit and vegetables, which rose by 9 per cent.
However, the basket of goods used to measure the food price index was 0.2 per cent cheaper than in June 2011, and follows a similar 0.2 per cent drop for May compared to a year ago.
Dairy was the main driver for the fall, with the price of fresh milk down 8 per cent on a year ago, while cheddar cheese is 16 per cent cheaper than 12 months ago and butter is down 24 per cent. The price of bread is also 2.4 per cent down on a year ago.
Between May and June the price of some goods rose sharply, with tomatoes up 42 per cent, avocados up 37 per cent and nectarines up 51 per cent. Statistics New Zealand said the price increases related to seasonal fluctuations.
Steak prices meanwhile dropped 9.2 per cent between May and June, while cakes and biscuits dropped 4 per cent.
ASB economist Christina Leung said underlying food price inflation was "subdued", reflecting recent falls in global commodity prices.
"The decline in global dairy, meat and grains prices in international markets over the first half of 2012 is flowing through to prices at the retail level here in New Zealand."
Leung said commodity prices were likely to continue to weigh on food prices in the near term, although more recently droughts in South America and the US Midwest were beginning to affect crop yields.
As well as pushing up the price of bread and cereal, the droughts could push up feed costs for US beef and lamb farmers, potentially raising the price of meat.
Next week Statistics New Zealand will release the consumer price index - the most popular measure of inflation - for the June quarter.
- © Fairfax NZ News