Economic Note - New Zealand Food Price Index
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.