Food costs still rising

New figures dash hopes of reprieve from inflation pain

Hopes that soaring food and grocery prices were easing have been dashed after investment bank UBS warned food inflation reached a new peak of 9.6 per cent in April.

Much of the pain is coming from fresh produce, with fresh food inflation spiking to 9.9 per cent in April, although that was slightly down from inflation of 10.1 per cent in March.

UBS analyst Shaun Cousins described the increasing rate of food inflation as a “surprise” and inconsistent with recent reports from heavyweights

Woolworths and Coles of food prices coming down.

UBS, which tracks more than 60,000 food and grocery prices to produce its “Price Tracker” monitor, disputes supermarket sector reports that prices were coming back from recent inflationary spikes. It said the cost of a basket of items at the retailers hit a new peak in April.

News of the consistently high and stubborn food prices will place further pressures on households already battling other cost-of-living pressures such as rising mortgages and rents.

According to UBS, food inflation, excluding tobacco, averaged 9.6 per cent in April, up from 9.4 per cent in March and 9.1 per cent for the third quarter.

In terms of the major supermarket chains, Coles is now ahead of Woolworths with Coles inflation up 10.5 per cent in April against 9.1 per cent in March, with Woolworths food inflation registering 8.7 per cent growth in April and 9.7 per cent in March.

In terms of the key supermarket categories, fresh food inflation was 9.9 per cent in April, down from 10.1 per cent in March but up against 8.9 per cent in February.

Dry grocery inflation rose 9.4 per cent in April against 9 per cent in March.

Mr Cousins said that while monthly pricing data is volatile, especially fresh given supply variability, “it is valuable given the current period of materially high food inflation”.

“The increasing rate of food inflation is a surprise, and inconsistent with the declines reported by Coles and Woolworths in the third quarter,” he said.

UBS said the stubbornly high food and grocery inflation could stem from supply chain costs and labour costs.

“We suggest the achievement of a new peak in food inflation (ex tobacco) is due to ongoing cost pressures on suppliers due to commodities and the domestic supply chain including labour,” Mr Cousins said. He expects a moderation in dry grocery inflation, while fresh inflation is expected to moderate due to improving supply.

“Yet dry grocery inflation is likely to remain elevated as pressures on commodities and the domestic supply chain including labour continue in calendar 2023, although the frequency of price rises may reduce,” he said.