Food prices down

October 14th, 2014 at 7:00 am by David Farrar

Stats NZ reports:

Food prices fell 0.8 percent in September 2014, Statistics New Zealand said today. This fall follows a 0.3 percent rise in August and a 0.7 percent fall in July.

“Lower food prices in September came from seasonally cheaper vegetables, partly countered by a rise in meat prices,” prices manager Chris Pike said.

Fruit and vegetable prices fell 6.5 percent. Lower vegetable prices (down 11 percent) were the most significant contributor to the monthly fall in food prices, with price falls for lettuce, tomatoes, cucumber, and capsicums. …

Food prices decreased 0.1 percent in the year to September 2014, following a 0.7 percent increase in the year to August 2014.

In the year to September 2014, grocery food prices decreased 1.6 percent, influenced by lower bread prices (down 14 percent).

Food prices don’t have a lot to do with the Government, more the market. But it is good to reflect that it has been several years since we have had serious food inflation.

In the last three years food prices have only increased 0.8%. This compares with a 18.1% increase from 2005 to 2008.

A remarkable difference.

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Issues that matter – the Economy

September 9th, 2014 at 4:00 pm by David Farrar

I think the economy matters and should be a much bigger issue in this election so I’ve put together almost a dozen graphs showing the difference between National and Labour’s record on 11 important economic indicators. These are issues that matter to families and businesses.

foodinflation

 

Food prices increased 18.6% in Labour’s last term. Food prices have increased only 1.3% in National’s last three years.

currentaccount

 

Labour left office with the current account deficit at 7.9% of GDP. It is now at 2.8%.

electprices

 

Power prices went up 22.9% in Labour’s last three years. The rate has halved to 12.1% in National’s last three years.

austmigration

 

There was a net loss of 35,830 people to Australia in Labour’s last year of office. In the last 12 months only 7,150 net departures – and in recent months under 100 a month.

inflation

 

The overall cost of living increases or inflation totalled 9.5% in Labour’s last three years. A third of that now at 3.3% over the last three years of National.

bot

 

Labour left office with an annual balance of trade deficit of $5.3 billion. In the last 12 months it has been a surplus of $1.3 billion

fruitvege

 

Remember Labour wanting to remove GST off fruit and vegetables. Under the last three years of Labour their prices went up 33.2%! Total increase in the last three years is a mere 1.4%.

deficit

 

The deficit in 2008/09 (on the fiscal settings left by Labour, and the impact of the GFC) was a massive $10.5 billion. Labour have opposed every piece of spending restraint since, but despite their opposition we are on track to a small $300 million surplus this year.

incomes

 

In June 2008 the median after tax income for a full time worker was $38,600 (in 2013 dollars). That has increased to $42,100 by June 2013, meaning the median FT worker has an extra $3,500 income to spend – and this during the worst recession the world has seen since the Great Depression.

unemployment

 

Unemployment went up by 27,000 in Labour’s last year in office. It has declined by 17.000 in the last 12 months, and is projected to keep declining.

You are welcome to share any or all of these graphs. All data is directly from Stats NZ Infoshare except the income data where I have used the IRD website to calculate the tax impact and the Reserve Bank website to adjust them for inflation.

New Zealanders have a clear choice. Remaining on our present course which is surplus, falling unemployment, low prices, fewer Kiwis leaving, growing after tax incomes and affordable food – or a radical change of policy which would see many more taxes, less competition, a massively expanded state and an unstable alternate Government.

It is only through a healthy economy do we get to have the money to fund our health and education systems. And that brings me to my final graph.

gdp

That is economic growth for Labour’s last year in office, and National’s last 12 months.

Government do not directly control many of these economic measures. But they can and do impact them with their economic policies. The difference between where we are today and where we were in the mid to late 2000s is stark.

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Food inflation now at -0.1%

August 27th, 2014 at 12:00 pm by David Farrar

foodinflation

Stats NZ has released their monthly food price index and it shows annual food inflation for the last 12 months was -0.1%, or basically food prices are stable.

The graph below shows food inflation since 2000. Note that the spike in 2011 was partly caused by the GST increase which saw income tax rates drop to compensate.

Food is one of the basic necessities, and the cost of food is a major factor for families. Food prices are mainly impacted by global and domestic markets, but government policies that impact the economy also have an effect.

Over the five years 8 months since November 2011, food prices have increased 10.3% and fruit and vegetable prices have increased 12.5%. On a per annum basis this is 1.8% and 2.2% food inflation respectively.

During the nine previous years, annual food inflation averaged 4.1% and fruit & vegetable prices increased 5.8% per year on average. Fruit and veges costs 52% more in November 2008 than November 1999.

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Food prices

March 13th, 2014 at 4:00 pm by David Farrar

Food Prices

 

Stats NZ updated the Food Price Index today and the good news is that food prices are only 0.2% higher than a year ago. In fact food prices are only 0.1% greater than two years ago. This stuff matters, as food inflation hits poor to middle income households the most.

Also fruit and vegetables prices are 5.6% lower than a year ago and remarkably 4.3% lower than even three years ago.

 

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Milk cheaper, beer price soars

February 18th, 2014 at 3:00 pm by David Farrar

Stats NZ reports:

The milk’s a touch cheaper, but the beer’s more expensive than it used to be, according to Statistics New Zealand’s annual snapshot of our country.

New Zealand in Profile 2014, released today, shows the average price of two litres of milk fell from $3.23 in 2008 to $3.19 last year, while an average 400ml glass of beer went up from $4.47 to $5.78 in the same five years.

So since 2008 the price of milk has dropped 1.2% and the price of beer has gone up 29.3%. That’s sad!

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CPI 0.1% for quarter

January 21st, 2014 at 2:00 pm by David Farrar

Stats NZ reports:

The consumers price index (CPI) rose 0.1 percent in the December 2013 quarter, Statistics New Zealand said today. Higher international air fares and rising housing and dairy prices were partly countered by lower vegetable prices and cheaper petrol.

International air fares rose 12 percent in the December 2013 quarter – the highest quarterly rise since the December 2009 quarter. “International air fares usually rise in December quarters. This quarter’s rise reflects seasonally higher air fares to Asia and Europe,” prices manager Chris Pike said. Package holiday prices (up 7.3 percent) also showed a seasonal rise.

Prices for housing and household utilities (up 0.5 percent) also rose, reflecting higher prices for property maintenance, purchase of newly built houses, and rentals for housing.

Annual inflation is 1.6%which is higher than I like it (I believe in aiming for 1%) but under the midpoint of the 1% to 3% range.

I prefer to look at the long-term series. Here are some comparisons of average annual price increases over the last five years (Dec 08 to Dec 13) compared to the previous five years (Dec 03 to Dec 08).

  • Electricity 3.9% compared to 7.8%
  • Household Energy 3.6% compared to 10.0%
  • Food 1.7% compared to 3.4%
  • Fruit & Vegetables 0.6% compared to 6.4%
  • Rental Housing 1.9% compared to 3.6%
  • Home Ownership 2.9% compared to 8.0%

Labour are very good at claiming they will lower food prices, electricity prices and housing costs – but their track record speaks for itself. Last election they campaigned to remove GST on fruit and vegetables. Well under the last five years of Labour they increased by 32%, and under five years of National just 3%.

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Food inflation

November 14th, 2013 at 11:00 am by David Farrar

Stuff reports:

Statistics New Zealand also measures the cost of a standard supermarket trolley full of grub over time – called “food price inflation”.

That index has jumped by one third over the last 10 years, and led to a 25 per cent drop in our purchasing power.

Food prices have indeed gone up 33% in the last ten years, but I’m not sure about that figure for a drop in purchasing power as after tax incomes have gone up more than that.

It is useful to break the 33% down by year. For each year to October, food inflation was:

  • 2004 – 1.1%
  • 2005 – 1.1%
  • 2006 – 4.0%
  • 2007 – 3.6%
  • 2008 – 9.9%
  • 2009 – 2.0%
  • 2010 – 5.1%
  • 2011 – 1.1%
  • 2012 – 0.3%
  • 2013 – 0.8%

So from Oct 05 to Oct 08, food prices increased a massive 17.5% approx. In the last 36 months they’ve gone up 2.2% only.

 

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Food prices

October 14th, 2013 at 7:00 am by David Farrar

foodprices

 

Stats NZ had the latest food inflation figures on Friday.

In the last three years food prices have gone up by 5.6%. In the period 2005 – 2008 food inflation was 18.1%.

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Labour on costs

July 13th, 2013 at 9:00 am by David Farrar

David Shearer has said:

“Kiwi families have been hit with a triple dose of bad news in the last 24 hours, with petrol prices, power prices and food prices all jumping sharply,” says Labour Leader, David Shearer.

“Just in time for the school holidays, petrol prices went up four cents a litre to $2.26.9 for 91-octane.  That’s on top of the July 1 three cent increase courtesy of the Government hiking up petrol tax

Yes petrol prices have gone up – because the dollar has dropped 10% in the last couple of months. Now which party has been saying that the dollar is still far too high and the Govt should intervene to bring it even lower (and hence make petrol more expensive)? You’ve got it – Labour (and Greens and NZ First).

“The latest power price data shows domestic power prices rose by 2.2% in the last three months, which means the average household will pay an extra $50 a year. 

No it doesn’t. The electricity CPI was 1366 in Dec 2012 and 1368 in March 2013. That’s an increase of 0.1%, not 2.2%.

“And the cost of food rose by 2.1 per cent in June – 50 per cent faster than in June 2012 and June 2011.  In fact, it was the biggest single monthly food price increase since National pushed up GST in October 2010. 

Food prices vary greatly month to month. The sound comparison is food prices compared to a year ago as that takes account of seasonal variations. And food prices up just 0.6% higher than a year ago, which is historically a very small increase.

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Food prices

May 14th, 2013 at 1:00 pm by David Farrar

The April Food Price Index is out.

  • Food prices down 0.2% on a year ago
  • Food prices up 7.4% since Dec 2008, over four and a third years.
  • Food prices increased 14.2% in the four years and four months to Dec 2008
  • Fruit and veges have increased only 4.3% since Dec 2008
  • Fruit and veges increased 20.6% in the four years and four months to Dec 2008

It seems the best way to keep the price of fruit and vegetables down has nothing to do with silly policies about removing GST on them.

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Food inflation

March 13th, 2013 at 11:15 am by David Farrar

The latest Food Price Index is out and food prices dropped this month. What I tend to focus on in the long-term change in prices.

In the last four years (Feb 2009 to Feb 2013) food inflation was 7.6% and fruit and vegetable prices went up 9.5%. That is equivalent to annual food inflation of 1.8% and fruit and vegetable inflation of 2.3%.

For the four years prior (Feb 2005 to Feb 2009) food inflation was 20.8% and fruit and vegetable prices went up 22.1%. That is equivalent to annual food inflation of 4.8% and fruit and vegetable inflation of 5.1%.

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Yay – Herald does a fact check

February 20th, 2013 at 2:00 pm by David Farrar

Amelia Wade in the NZ Herald reports:

Food prices are not becoming more expensive as the increase in cost tracks the rate of inflation, an economist says.

The cost of a basket of fruit and vegetables has increased by 14.2 per cent in five years, according to Statistics New Zealand data requested by theHerald.

The Consumers Price Index – a measure of inflation – has jumped 15.7 per cent over the same period.

Shamubeel Eaqub, principal economist at the NZ Institute of Economic Research, said the rising cost of food often inspired emotive reactions.

“When you look at these issues, you sort of need to step back a bit.”

Mr Eaqub said food prices were not becoming more unaffordable. Since 2000, the average hourly wage had risen by about 50 per cent while food prices had risen about 30 per cent, he said. “Typically speaking wages will rise quicker than the cost of living.

Good to see the Herald doing stories like this, rather than just reporting a lobby group calling for GST to come off fruit and vegetables.

Note on Sunday I also blogged on this issue.

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Food prices

February 17th, 2013 at 11:52 am by David Farrar

Radio Live tweeted:

There are calls from Fight the Obesity Epidemic for the Government to act over the price of fruit and vegetables, which continue to soar.

These bunch of taxpayer funded lobbyists have been very vocal in the last few years. Whenever there is a monthly spike in food prices, they cry that it is the end of the world. They really seem to think we have obesity because of the price of spinach.

Anyway yes fruit and vege prices jumped 3.5% in January 2013. But there is this thing known as seasons. So what you should do is compare the price of fruit and veges to other Januaries.

Now the current fruit and vege price index is at 1223, and four years ago in January 2009 it was at 1128. This means that over four years it has increased 8.4% which is equal to annual increased of 2.04% compounding.

The increase in fruit and vegetables prices over the last four years is almost identical to the overall increase in food prices (8.2% v 8.1%) and smaller than the overall level of inflation which was 9.0% over four years.

So what causes fruit and vegetable prices to go up? Inflation. Policies such as printing money and looser monetary policy settings. Will the anti obesity lobbyists target policies that are inflationary?

This is of course the last four years only. If we went back a bit further, they might have cause for complaint. In the four years from January 2005 to January 2009 fruit and vegetable prices increased a staggering 26.2%.

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Food prices

January 17th, 2013 at 12:00 pm by David Farrar

Stuff reported:

Food prices fell for a fourth month straight in December, led by a drop in non-alcoholic beverages which offset higher meat, poultry and fish prices.

The Food Price Index fell 0.2 per cent in the month, according to Statistics New Zealand following a 0.8 per cent decline in November. The current level of 1243 marks the lowest point on the index in almost two years.

I’ve calculated annual food price inflation since the series began in 1960, below.

foodinflation

 

So in one year, food prices increased 25%. I guess there was lots of money being printed that year.

If we look at post 1990 only:

foodprices90s

 

So three big spikes post 1990. One was in 2001, another in 2008 and the third in 2011. The latter one being impacted by the GST increase.

If you look at food inflation over each three year approx electoral term, the cumulative annual increases were:

  • 1991 – 1993: -0.1% (go Ruth)
  • 1994 – 1996: 4.3%
  • 1997 – 1999: 4.2%
  • 2000 – 2002: 11.1%
  • 2003 – 2005: 2.7%
  • 2006 – 2008: 18.4%
  • 2009 – 2011: 6.6%

Annual food inflation in 2012 is -0.9% so far. Useful to recall this when you see stories about the rising cost of food!

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Low inflation

April 20th, 2012 at 10:58 am by David Farrar

The latest inflation figures show up for me how silly Labour’s election policies were. Do you remember how they campaigned on removing GST off fruit and vegetables, because people can’t afford them?

Well in the last year the average cost of fruit and vegetables has dropped 6.6%.

Overall food prices have increased just 0.6% in the last year. That is good for especially low income families, as food makes up a larger proportion of their budget.

Clothing costs increased only 0.1% over 12 months also.

Also do you recall all the stories about massive increases in electricity prices? Well over 12 months the average cost is up 1.8% only.

Inflation overall for the year was 1.6%. Still a bit higher than I would like it. I believe 1% is the appropriate level to aim for (mid-point of 0% to 2% range) but the Reserve Bank will be happy with 1.6% and interest rates should remain low for a while yet.

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Supermarkets

January 15th, 2012 at 11:00 am by David Farrar

The SST report:

Woolworths New Zealand’s underlying profit margins have increased much faster than the cost of food for the past three years.

Australian-owned Woolworths, which operates Countdown supermarkets locally, said the results were due to improved efficiency, but the Green Party said an investigation into supermarket pricing is overdue and the industry is in need of tighter regulation.

What a bizarre comparison. It is a good thing that profits have increased faster than the cost of food.

Are the Greens saying that if profits had stayed the same, and food prices had increased more (hence decreasing the gap), that would be good for NZers?

Are they saying that if profits had stayed the same, and food prices had dropped (hence increasing the gap), that would be bad for NZers?

The comparison is absolutely nonsensical. What the Greens are really saying is that just don’t like companies making profits.

Calculations by the Sunday Star-Times show that once unusual costs and income are stripped out of Woolworths NZ’s accounts – items such as losses on the company’s investment in The Warehouse and the impact of the Christchurch earthquakes – the business posted year-on-year increases in earnings before interest and tax of 14.3%, 19.3% and 9.6% over the period.

Recorded food inflation over the same time-frame was 7%, -0.7% and 7.5%, according to Statistics New Zealand.

Again, so what? Take the middle year – EBIT increased 19.3% and food prices dropped by 0.7%. Great.

If you want to make the case the supermarkets are making excessive profits, then you need to be looking at profits compared to capital and dividends compared to share price etc.

The supermarket operator’s latest financial statements show that it earned gross revenue of $22.33 for each $100 of sales shoppers put through its tills in the year to the end of June 2011. That was up from $21.95 in 2010 and $21.61 the year before.

That’s higher than UK chains Tesco and Sainsburys, which earned gross revenue of 8.30 and 5.50 respectively for every 100 that went through their tills.

Gross margins mean little, especially when comparing just four companies in two countries. What about economy of scale, what about underlying costs?

Green MP Mojo Mathers said the country needs to act on food prices, and promote “genuine” competition.

“We are overdue for an investigation into supermarket pricing practices,” she told the Sunday Star-Times. “We need a supermarket code of conduct and a supermarket ombudsman set up to enforce the code.”

Such measures, now established in the UK and being considered in Australia, will help create a level playing field for consumers and producers, Mathers said.

I fail to understand what is needed beyond the current provisions of the Commerce Act and Fair Trading Act. I suspect the Green call for an Ombudsman is so the Greens can achieve their long held desire to ban foods they don’t approve of, such as large easter eggs which Sue Kedgley used to campaign against.

However, Woolworths said its margin and earnings improvements are the result of investment in efficient systems that have delivered food price increases below the rate of inflation.

“We think there is a really great business story in our results over the past three years, which, in the main, is due to the significant investment Woolworths has been making in Progressive Enterprises and our brand Countdown,” said Dave Chambers, the managing director of Woolworths’ subsidiary Progressive Enterprises.

“This investment in new systems, new warehouses, and new and refurbished stores is now well in excess of $1 billion and has meant our Countdown stores are more appealing to customers, as evidenced by our sales growing ahead of the market,” he said.

As a result, the company has reduced wastage, stock losses and trimmed stock in the supply chain.

Sounds good to me.

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Food spending internationally

August 16th, 2011 at 1:00 pm by David Farrar

This comes from the Berkeley School of Journalism. Tends to show NZ is not too badly off in terms of food prices.

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Fruit & Veges

August 11th, 2011 at 1:00 pm by David Farrar

Got sent a spreadsheet comparing costs in the Hawke’s Bay of various fruit and vegetables between outlets and products. It shows that the difference between various retail outlets is far far more than the 15% GST. Some examples – all expressed as costs/kg:

  • Pumpkins – 94c at roadside vendor v $1.99 supermarket
  • Cabbages – $1.88 at roadside vendor v $4.43 supermarket
  • Brocolli  – $5.11 at roadside vendor v $9.97 supermarket
  • Tomatoes – $14.56 at supermarket fresh v $3.75 canned
  • Beans – $6.57 frozen v $3.75 canned
  • Peas – $5.23 frozen v $3.75 canned v $2.49 Pams Peas

Amazing there is such a huge price variation.

 

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Food Prices

March 6th, 2011 at 10:32 am by David Farrar

The Herald on Sunday reports:

Prices of day-to-day food, groceries and accommodation are rising at almost their fastest rate in the past 20 years, according to an in-depth Herald on Sunday investigation.

Food prices did increase a lot in January 2011. But that does not mean the HoS claims are accurate, and secondly you need to be very careful to jump to conclusions when prices have been fairly stable for 11 months and have only increased since Christmas.

But wage levels aren’t keeping pace – meaning daily life is as expensive as it’s ever been.

A slogan direct from the Labour Party – but wrong. After tax wages have increased for someone on the average wage either 12% or 16% (off memory. You buy food from your after tax income not your before tax gross wage.

Prices for apples, carrots, mushrooms and potatoes have gone through the roof in the past 12 months, rising 50 per cent or more.

Really. Well the official Food Price Index records prices for all of those items. This is done by the neutral Stats NZ, and isn’t influenced by cheery picking stores.

From January 2010 to January 2011 (Feb food prices are due out Friday), the price for 1 kg of apples has gone up 3% only. For carrots it is 26%, mushrooms 4% and potatoes 35%.

So none of thse have gone up 50%, and for two of the four items, the increase is a magnitude less than claimed by the HoS.

Now let’s not minimise that carrots and potatoes have still increased a lot, and this will be a stretch for some budgets. But this is the nature of having a global market for food.

Lamb and fish have also gone up more than 10 per cent, as have cheese, milk and fruit juice.

According to the food price index, the increases are lamb 6%, fish 0%, cheese 17%, milk 9% and fruit juice -1%.

Now maybe the February Food Price Index will come up with results that back the HoS story, but I’m going to wait to rely on the official figures. I also wonder why the HoS did its own survey when they get a free survey done for them every month by Stats NZ – that is robust and reliable.

Yet statistics reveal wages and salaries increased only 1.7 per cent last year.

Again, you pay for your food out of your after tax income, not the nominal gross wage you get.

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Food Prices

February 21st, 2011 at 10:00 am by David Farrar

The SST reported:

Rising food prices have heightened public calls to make healthy eating more affordable. 

IN THE wake of moves to freeze the price of milk, calls are growing for cheaper food.

The government has already rejected removing its 15% GST from food, but a Sunday Star-Times online poll last week revealed almost two-to-one support for removing the tax from fruit and vegetables.

I’m amused that the media are doing stories on the costs of fruit and vegetables during a period when they are in fact hardly rising at all, but seemed to never do a story when they were going up.

The Food Price Index for fruit and vegetables goes back to 1999. From December 1999 to December 2008 the cost of fruit and vegetables went up 44% or 4.9% a year. From December 2008 to December 2010 it went up 3% or 1.7% a year.

Note that the 1.7% a year over the last two years includes the impact of the GST increase.

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A nice table

October 18th, 2010 at 12:54 pm by David Farrar

The day after Phil Goff announces he is campaigning on the cost of living, Stats NZ announces the lowest annual inflation rate since March 2004.

Bill English has done this handy table comparing the last two years, to the previous two years. National needs to do more stuff like this:

Price and wage changes over comparable periods

Labour National
Sep 2006 to Sep 2008 Sep 2008 to Sep 2010
Overall inflation (Consumers Price Index) 7% 3%
Overall food prices (Food Price Index) 15% 5%
Food prices
Bread and cereals 18% 4%
Milk 23% 7%
Cheese 50% -3%
Eggs 19% -6%
Vegetables 21% -6%
Fruit 8% 7%
Beef 18% -1%
Poultry 44% -2%
Non-food prices
Petrol 22% -14%
Electricity 13% 8%
Gas 22% 5%
Housing rents 6% 3%
Wages Dec 2006 to Sep 2008

(7 quarters)

Sep 2008 to Jun 2010

(7 quarters)

Nominal pre-tax wages 7% 7%
Real pre-tax wages 0% 5%
Real after-tax wages -1% 9%

Incredible that food prices went up 15% over the last two years of Labour’s term. Now this is not their fault, but it shows how meaningless their no GST policy on fruit and veges is – the price movements from season to season are far greater than the GST. For example vegetables went up 21% in Labour’s last two years and have dropped 6% since Sep 2008.

And most damning, a NZer on the average wage had a 1% drop in their real after tax wages from Dec 2006 to Sep 2008, while under the most recent seven quarters that worker would be 9% better off. And that is before the 1 October tax changes which will make then even better than 9%.

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Labour’s inflation record seven times worse than GST increase

February 23rd, 2010 at 1:00 pm by David Farrar

Labour are campaigning against the GST increase (yet being careful not to promise to reverse it), saying it will hit households hard. Well Stats NZ have calculated that the impact of GST going to 15% will be a one off increase of 2.0% in the CPI.

Now let’s see how that compares to the CPI increases under the last two Government’s.

In December 1990 the CPI was 731 and in December 1999 it hit 837. That was an increase of 14.5% over nine years – an average of 1.5% a year,

From December 1999 to December 2008 the CPI went from 837 to 1072 – an increase of 28.1%, and an average of 2.8% a year.

The difference between inflation under Labour and under National is around 14% – or seven times greater than the one off 2% increase caused by a GST increase.

Now if one takes just food prices, it is even worse. The food price index increased only 9.9% under nine years of National. Under nine years of Labour it shot up a massive 37.1%.

So if you hear a Labour MP talking about the impact increased prices will have on families, remind them of the 37% increase in food prices and the 28% increase in all prices that occurred under Labour.

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Inflation hits 18 year high

October 21st, 2008 at 12:26 pm by David Farrar

Labour is making a habit of leaving office with economic problems for the new Government.

Stats NZ reveals that inflation for the year to September 2008 was 5.1% – its highest level since June 1990. Major contributors:

  • Household Energy 7.5%
  • Hospital Services 7.1%
  • Private Transport 21.5%
  • primary and secondary eduction 5.7%

The monthly food price index also came out today – and it is also at an 18 year high of 10.8%. Major contributors:

  • Vegetables 22.3%
  • Mutton/Lamb 17.3%
  • Bread 16.5%
  • Pasta 18.2%
  • Cheese 42.3%

All fairly common items, to say the least.

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Paul Walker on food prices

July 25th, 2008 at 2:00 pm by David Farrar

Paul Walker takes a long hard look at the causes of global food inflation. He looks at the three theories:

  1. Newspapers have cited an internal World Bank document as having found that 75% of the price increase was due to biofuels
  2. Several governments and commentators see speculation as a major driving force.
  3. Widely held view has it that rapidly growing food demand in the emerging economies is pushing up global food prices.

So how does theory 2 hold up:

Yet, there is no hard evidence that “speculation” has added much to the price increase on spot markets. After all, it is only when “speculators” actually buy produce on the spot market that they can drive up the price, and this would have to be reflected in growing stock levels – but stocks appear to have declined throughout the period of rising prices

So how about theory 3 – blame China and India:

Food demand in China, India, and other emerging economies is rising as their incomes grow. However, domestic food production in most of these countries is growing in parallel. China, for example, has been a consistent and growing net exporter of cereals (including rice). The Agricultural Outlook expects China’s net cereals exports to decline only very gradually in the coming decade. For India, the picture is similar, though there was significant variability in its net trade position in the past. In short, growing food demand in the major emerging countries cannot be held responsible for the rise in world market prices for cereals.

So that leaves theory 1 – biofuels:

The use of agricultural products, in particular maize, wheat, and vegetable oil, as feedstock for biofuel production has expanded dramatically in recent years. Between 2005 and 2007, i.e. in the period when food prices began to explode, nearly 60% of the growth in global consumption of cereals and vegetable oils was due to biofuels. Global output of cereals and vegetable oil did not decline during that period, but just grew slower than the rapid expansion of use.

In a situation of depleted stocks and very low demand and supply elasticities, this gap between use and output growth has pushed prices up very strongly.

And the conclusion:

Thus we find that there cannot be much in the way of doubt that biofuels are a significant factor in the rise of worldwide food prices. Add to this the fact that other research suggests that biofuel support policies are disappointingly ineffective on environmental grounds, then it should be clear that governments need to reconsider their support for biofuels. But many governments, including New Zealand’s, seem to want to push ahead with such policies despite the kind of evidence Tangermann brings to bear on the issue.

Stefan Tangermann, quoted by Walker, is Director of Trade and Agriculture for the OECD.

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Food Inflation

June 12th, 2008 at 6:38 pm by David Farrar

Stats NZ released the May 2008 monthly food price index results today, and it confirms what everyone knows. I’ve graphed below food inflation since the last election. It has been trending up almost constantly for the last three years.

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