Cheaper dairy puts the brakes on food price index
Falling prices for milk and cheese more than offset a sharp seasonal rise in fruit and vegetable prices, with food prices down for the second month in a row in June.
The food price index from Statistics New Zealand showed that although food prices in June were 1.4 per cent higher than May, the basket of goods used to calculate food prices dropped 0.2 per cent, the same annual fall as May. In April, annual food prices showed no change.
Dairy prices, in headlines last year as the price of milk climbed, are now one of the main brakes on food inflation. Butter costs 24 per cent less than a year ago, cheddar has dropped 16 per cent, and fresh milk is down 8 per cent to its lowest price in two years.
The fall in dairy products, as well as a 2.6 per cent fall in the price of bread, was put down to a drop in global commodity prices, which have mostly fallen in recent months.
Westpac chief economist Dominick Stephens said food prices were being weighed down by global weakness, driven by a slowdown in China's economy, as well as a strong New Zealand dollar, which makes imports cheaper.
"Both factors take some time to flow through to the shop shelves," Stephens said, predicting that the drop in food prices caused by commodity weakness may continue but had "almost" hit bottom.
The respite from rising global food prices may only be temporary.
In recent weeks temperatures have hit record levels in many parts of the United States, with the heat causing droughts, which had seen grain prices spike on fears of lower crop yields.
ASB economist Christina Leung said 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.
Higher feed prices could also cause US dairy production to fall, which could raise milk prices if the world's largest population were forced to increase imports.
In June there was a severe rise in the price of fruit and vegetables over May, as many seasonal items spiked as supplies ran out. That saw the price of tomatoes rise 42 per cent, avocados 37 per cent and nectarines 51 per cent.
On an annual basis, however, fruit and vegetable prices were 2.6 per cent lower than a year ago, when fresh-produce prices were setting records.
- © Fairfax NZ News
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