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Economic Note - NZ Food Price Index - July 1999

Economic Note (New Zealand)
NZ Food Price Index - July 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 increased 0.5% mom in July, following a 0.7% mom decline in June. Food prices are now 1.1% higher than they were in July 1998, continuing the trend softening in food price inflation observed since late last year.

The most significant contribution to the increase in the July index came from the grocery foods, soft drinks and confectionery subgroup (+1.2%). Partially offsetting this increase was a decline in the fruit & vegetable subgroup (-1.4%). Food prices excluding the volatile fresh fruit and vegetable components rose 0.7% mom (1.9% ann.).

FPI ------ Food Price Index ------ Fruit & Vegetables Index
------ ------ mom.% ---- ann.% ------ mom.% ------ Ann.%

Feb-99 ------ 1.1 ------ 3.9 ------ 6.8 ------ 9.1

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

Comment

The 0.5% mom rise in food prices in July was only marginally above market expectations for a 0.4% mom increase. The pick-up in the grocery food, soft drinks & confectionery subgroup for the month largely reflects a number of items having moved off being on "special". Despite the general easing in annual food prices over the first half of this year, we expect the sharp increase in petrol prices together with continuing rises in local authority rates and electricity prices will lead to an upturn in CPI inflation over the September quarter. At this point, we expect a quarterly CPIX outturn of 0.8% qoq - slightly above the 0.7% qoq forecast by the RBNZ. A rise in inflationary pressures reinforces our expectation that the RBNZ is likely to raise the OCR by 50 bps at the 17th November Monetary Policy Statement.

August Food Price Index Release: Monday 13 September.

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