Hopes of relief for household budgets from high food and grocery prices have been shattered as investment bank UBS issued a warning that food inflation reached a record high of 9.6% in April. This surge in prices is attributed to ongoing challenges in the supply chain and labour market, causing inconvenience and expense for shoppers.
The most significant impact is felt in the fresh produce category, which experienced a spike in inflation to 9.9% in April, although this was slightly lower than the 10.1% inflation seen in March. Despite reports from major retailers Woolworths and Coles suggesting a decrease in food prices, UBS analyst Shaun Cousins expressed surprise at the increasing rate of food inflation, which contradicts their claims.
UBS, monitoring over 60,000 food and grocery prices, found that the cost of a typical basket of items at retailers reached a new peak in April. This persistent and high food inflation adds additional strain on households already grappling with rising mortgages, rents, and other living costs. Excluding tobacco, food inflation averaged 9.6% in April, compared to 9.4% in March and 9.1% in the previous quarter, according to UBS.
Among the major supermarket chains, Coles experienced higher inflation than Woolworths, with Coles’ inflation rate reaching 10.5% in April (compared to 9.1% in March) while Woolworths recorded 8.7% growth in April (9.7% in March). However, Coles disputed the UBS report, claiming it does not accurately reflect the way they calculate inflation across their products and customer buying behaviours.
Fresh food inflation in April stood at 9.9%, down from 10.1% in March but higher than 8.9% in February. Dry grocery inflation rose to 9.4% in April from 9% in March. The cause of persistently high food and grocery inflation is attributed to increased supply chain costs and labour costs.
UBS analyst Shaun Cousins expects a moderation in dry grocery inflation and a slowdown in fresh food inflation due to improved supply. However, he anticipates that dry grocery inflation will remain elevated due to ongoing pressures on commodities and the domestic supply chain, including labour, throughout 2023.
The rise in inflationary pressures observed in major supermarkets contradicts recent statements made during their quarterly updates, where indications were given that near-double-digit inflation in key food and groceries was starting to stabilise.
The UBS report also predicts that higher prices at the checkout will drive more customers to switch to private label groceries, a trend acknowledged by Woolworths and Coles.
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