No easing in food inflation before Christmas

The boss of Metcash, the ­nation’s largest supermarket wholesaler, believes cost pressures swirling through the global economy and causing a rapid acceleration in the price of food and groceries is likely to remain in place until at least the start of next year.

And shoppers who first walked into a Metcash-affiliated supermarket – such as IGA and Foodland – during the pandemic as they stayed close to home and shopped locally have stuck to that behaviour, with Metcash looking to hold and grow its market share in the $100bn-plus supermarket sector.

However, Doug Jones, the recently appointed Metcash chief executive, said that, despite food inflation racing above 5 per cent at his supermarket networks, volumes had held up.

Mr Jones also said he had not witnessed a large shift by consumers to cheaper groceries such as frozen, tinned and private label foods as they tightened their belts in the face of a higher cost of living.

In Adelaide to present a two-day investor roadshow, Mr Jones also revealed the wholesaler’s latest trading performance, which showed that, for the 23 weeks to October 9, total sales were up 7.7 per cent. At its flagship food arm, sales were up 2.6 per cent with supermarket wholesale inflation of 5.8 per cent. Supermarket sales were up 1.5 per cent.

At its hardware arm, led by its brands such as Mitre 10, Home Hardware and Total Tools, sales had risen 17.1 per cent and liquor sales for the 23-week period were up 12 per cent.

Mr Jones said before the investment day started that food inflation, excluding tobacco, had accelerated and that he could not see any moderation of cost pressures in the economy before Christmas.

“Whether fundamental underlying cost pressures will come down before next year, I would doubt it,” he said.

“My estimate is you won’t see a material reduction in inflation this side of Christmas.”

A recent UBS report on food inflation found that the rapid increase in food prices at the supermarket had accelerated to more than 8 per cent, reflecting decades-high inflation rates for fresh and packaged foods.

The UBS report on the supermarket industry and food prices tipped that food inflation for the first quarter of the 2023 fiscal year accelerated to 8.3 per cent at Woolworths and 8 per cent at Coles. That was up sharply from food inflation of 5.6 per cent in the final quarter of 2022 for Woolworths and 5.5 per cent for Coles.

Mr Jones said at this stage he was not seeing any huge shifts in spending patterns by shoppers, and that there was still some willingness by consumers to indulge themselves.

At the investor day, Metcash said Covid-19-related costs had started to normalise and there had been some improvement in supply chain challenges, with corresponding improvement in stock and service levels. However, the availability of labour remains very tight.

Metcash shares closed down 1.5 per cent at $3.80.


Extracted from The Australian

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