NEWS Drought could hit Territory wallets

THE big dry has begun to hit hip pockets, with the cost of fruit and vegetables soaring by 9 per cent in just three months.

A leading share analyst, who has been tracking prices since 2012 to help investors decide whether to buy or sell the stocks of supermarket owners, recently wrote to clients that the “drought affecting much of Australia’s growing regions” was a key reason for fresh food’s “prominent return to inflation” between July and October.

But in a welcome respite for households, Coles and Woolworths had “held back” on meat and seafood price increases, the analyst, Deutsche Bank’s Michael Simotas, said.

The chains had done so despite the rising wholesale cost of chicken and red meat because they considered the “family shop to be centred on this category”, Mr Simotas said.

His analysis does not look at the dollar impact at the checkout. But if the chains are forced to pass on protein price rises, the hit could be $20 per trolley. That’s bad news for consumers already contending with high petrol prices

The good news is that wage gains could be about to pick up by enough to outpace the rise in overall costs.

That would put living standards on the rise again after a recent fall.

Leading economist Stephen Roberts, of Laminar Capital, expects by the end of next year for wage growth to reach 3.5 per cent and the consumer price index 3 per cent – the upper limit of the RBA’s inflation target. Both wage growth and CPI are currently running at just above 2 per cent.

While Mr Roberts’ forecasts are more aggressive than those of many other economy watchers, he said there is plenty of evidence to back up his views. In previous droughts, food inflation has hit twice the rate of general inflation.

Shown the Deutsche Bank index, a Woolworths spokeswoman said “fresh food prices have remained relatively stable across the board, but we continue to monitor commodity markets and feedback from our industry partners closely”.

A Coles spokesman declined to comment on the index, but said fruit and vegetable prices were coming off a low base.