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ASB Quickview: October Food Price Index

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Fuseworks Media
Fuseworks Media
ASB Quickview: October Food Price Index

Food prices increased 2.2% in October, in line with the increase in GST from 12.5% to 15% that occurred at the beginning of the month. This suggests that excluding the effects of GST, overall food prices were broadly flat over the month. Within the detail, the price of fruit and vegetables and meat increased by more than the increase in GST. In addition to the GST increase, the 4% increase in fruit and vegetable prices also reflected the lingering effects of poor weather conditions in September which affected broccoli and cabbage crops.

Meanwhile, the 2.9% increase in meat prices also reflected the recovery in NZD-denominated international meat prices earlier in the year flowing through to the retail level. We expect a continued recovery in meat prices at the retail level over the coming months, given the elevated level of international meat prices.

Higher international commodity prices were also reflected in the substantial increase in the price of many dairy products. Within the 1.7% increase in grocery prices, there was a 6.3% increase in preserved milk prices and 4.6% increase in the price of other milk products.

Anecdotes have been mixed as to whether retailers have passed on the full cost of the GST increase at the beginning of October. While some retailers have chosen to use the GST increase to review their prices, others have chosen to absorb the GST increase into their margins. Today's results are in line with these anecdotes, and show that on net prices increased in line with the GST increase. Incorporated in our current forecast of a 2.6% qoq increase in headline CPI for Q4 is the assumption that the GST increase boosts overall prices by just over 2%.

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