Food, grocery prices to remain high for at least 18 months as inflation persists

The boss of the nation’s peak body for food and grocery manufacturers says consumers should brace for another 18 months of heightened inflation, with many approaching retailers for a third time asking for price hikes.

Australian Food and Grocery Council chief executive Tanya Barden has warned the impacts of supply chain disruptions, Covid-19 and the war in Ukraine are continuing to push up input costs for her members, with the sustained rise in costs including ingredients, fertilisers, energy, shipping and packaging ratcheting global food inflation to decades highs.

Ahead of the release of the June quarter official CPI figures on Wednesday, expected to show an annual acceleration in the cost of living to a three-decade high of 6.3 per cent from 5.1 per cent in the first quarter, Ms Barden said she expected high prices to persist.

She wouldn’t be surprised if inflation got closer to the 7 per cent mark for the June quarter year-on-year and that the cost of living remains elevated for as long as 18 months.

“I would say, expect inflation to be above the longer term average for around 18 months … I’m not saying it‘s necessarily going to be sitting at around 6 or 7 per cent in 18 months’ time, but I do think that it’s going to take some time to get back down to the 3 per cent band given predominantly it’s driven by so many global factors that continue to be uncertain,” Ms Barden told The Australian.

“What we are seeing is that even though there is increasing consumer demand, which is partly brought about by the being freed up from lockdowns and wanting to spend as well as the economic stimulus for Covid payments, that only partly explains what‘s going on.

“A lot of the inflationary pressure is coming on the supply side and that’s either related to Covid disruptions, trade and transport as well as the disruptions from the war in Ukraine.”

Ms Barden, whose AFGC represents the $133bn food and grocery industry and are the major suppliers to Australian supermarkets, said her members have continued to approach the chains such as Woolworths and Coles to ask for further price hikes to deal with their own elevated cost of doing business.

“Our members are going into the second or third time of negotiations with the retailer, keeping in mind that this is on the back of a decade where the food and grocery industry has had to absorb a lot of cost increase … and (industry) profitability had fallen from $8bn to $5bn billion over the last decade.

“So that just has meant that it‘s been a lot more difficult to be able to absorb these costs increases now.”

In April, Ms Barden warned that food and grocery manufacturers were facing increases in costs of up to 700 per cent since the Covid-19 pandemic began and signalled that some of those extra costs would flow through to the price shoppers pay at the checkout.

Shoppers have certainly witnessed that price hike at the shops with food and grocery prices racing ahead of inflation and led by higher shelf prices for fresh fruit and vegetables such as lettuce which spiked to $12 a head recently.

Both Woolworths and Coles have reported their food and grocery suppliers had been coming back to them multiple times with requests for price rises to cope with the higher cost of doing business ranging from packaging, energy, transport and labour.

In June Coles chief executive Steven Cain told The Australian’s Global Food Forum that the level of grocery suppliers knocking on his door petitioning for price rises was up five times compared to last year.

“As I sit here today, we have got five times as many requests for price increases as we had last year. Five times,” Mr Cain said.

“And they’re not small amounts. It’s not 2 per cent or 3 per cent being asked for either so there is, you know, the usual ‘pig in the python’ trying to work its way through the system, whether things plateau or whether they come down slowly remains to be seen.”

Ms Barden said price pressures will persist amid ongoing global uncertainty but warned any interest rate rises to address inflation would have limited impact and must not slow the economy too much.

“There can be some moderate impact that interest rates will have but because a lot of this inflation is supply-led it does make it a lot harder to bring under control,” she said. “Unfortunately consumers do need to understand that there is going to be, I would imagine, an 18-month period at least where inflation is going to be above what has been normal.”


Extracted from The Australian

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