Food prices fall in July, OCR hold talk builds

The food price index rose 1.4 per cent in June, the fastest monthly pace since the same month a year earlier, and up from 0.6 per cent in May. Photo / APN

New Zealand food prices declined in July, adding weight to speculation that softer inflation will prompt the Reserve Bank to keep the benchmark interest rate on hold until next year.

The food price index fell 0.7 per cent from June, its first decline in four months, as discounting led to lower prices for beef and processed meat, Statistics New Zealand said. The index was 0.1 per cent lower than July last year, the first annual decline in 14 months, led by lower prices for fruit and vegetables, the agency said.

Food prices are one of the components eyed by economists as they evaluate the pace of inflation, as they make up about 19 per cent of the broader consumer price index compiled by Statistics New Zealand. Weaker inflation means the Reserve Bank may hold off raising the official cash rate again until next year, analysts said.

"The result adds to recent inflation indicators pointing to a subdued inflation environment for now," ASB Bank economist Christina Leung said in a note. "With the Reserve Bank already having put through 100 basis points of OCR increases this year, we expect it will now pause until next March to assess the effects of the tightening it has done to date."

The Reserve Bank will probably increase the benchmark rate four times next year, with interest rates peaking at 4.5 per cent at the end of next year, Leung said.

July food prices fell from June as fruit and vegetable prices slipped 0.9 per cent; meat, poultry and fish prices slid 2.2 per cent; and grocery food prices declined 0.7 per cent, the statistics agency said. Meanwhile, non-alcoholic beverage prices rose 0.2 per cent and restaurant and takeaway food prices remained unchanged, it said.

Compared with July a year earlier, fruit and vegetable prices were the only subgroup to record a decline, sliding 5.9 per cent, Statistics New Zealand said. Meantime, meat, poultry and fish prices increased 0.5 per cent; grocery food prices rose 0.2 per cent; non-alcoholic beverage prices gained 1.5 per cent; and restaurant and takeaway food prices advanced 2.2 per cent, it said.

See the latest Food Price Index update here: