Economic Note (New Zealand) NZ Food Price Index - August 1999
Key Points
The food price index (FPI) comprises 18% of the CPI regimen and is very
volatile on a monthly basis. The food price index fell 0.6% mom in
August, following a 0.5% mom increase in July. Food prices are now 0.6%
lower than they were in August 1998 - the first decline in annual food
price inflation since February 1996.
The most significant contribution to the decrease in the August index came
from the grocery foods, soft drinks and confectionery subgroup (-0.9%) and
the fruit & vegetable subgroup (-2.5%). Food prices excluding the
volatile fresh fruit and vegetable components fell 0.3% mom (+0.6% ann.).
FPI Food Price Fruit &
Index Vegetable Index
mom.% ann.% mom. % ann. %
Mar-99 -0.8 2.4 -4.7 -1.3
Apr-99 0.0 1.7 0.4 0.3
May-99 -0.4 2.4 -1.1 5.3
Jun-99 -0.7 1.4 -4.8 0.7
Jul-99 0.5 1.1 -1.4 -5.4
Aug-99 -0.6 -0.6 -2.5 -8.9
Comment
The 0.6% mom decline in food prices in August was considerably below
market expectations for a 0.5% mom increase. The fall in the grocery
food, soft drinks & confectionery subgroup for the month largely reflects
a number of items having moved on "special". The decrease in the fruit
and vegetable subgroup results from a return to good winter growing
conditions following the summer drought. Despite the fall in annual food
prices over the first half of this year, quarterly CPIX inflation outcomes
of +0.8% qoq and +0.6% qoq over the September and December quarters
respectively are likely to result. The projected pick-up in CPIX
inflation over the second half of this year is expected to be driven by a
number of one-off influences. This includes a significant rise in local
authority rates (estimated contribution: +0.2%) and the rise of around 12%
in petrol prices experienced (direct influence: +0.4%). The rise in
inflationary pressures from these sources reinforces our expectation that
the RBNZ is likely to raise the OCR by 50 bps at the 17th November
Monetary Policy Statement.