FPI shows early signs of fuel prices flowing through

Food prices fell 0.2 per cent in August, Statistics New Zealand said today.

But while cheaper fruit and vegetables kept the monthly grocery spend down, the data indicates the secondary effects of higher fuel prices are beginning to flow through.

Grocery items like soft drinks and confectionery, ready-to-eat meals, meat, fish and poultry -- which travel further before reaching consumers' plates -- all cost more in August.

The Food Price Index, which makes up around 18 per cent of the inflation-measuring Consumer Price Index, rose 2 per cent in the year to August.

That should provide some food for thought for Reserve Bank Governor Alan Bollard, who today resisted raising official interest rates -- despite indications that inflation will nudge 4 per cent next year.

Today's data is an early sign that higher petrol prices may be flowing through to the broader economy.

Fruit and vegetable prices were down 2.7 per cent in August, due largely to a 41.5 per cent fall in the price of avocados, and a 31.4 per cent fall for broccoli.

Offsetting those falls were rises for meat, fish and poultry, which rose 0.1 per cent; restaurant meals and ready-to-eat foods, up 0.2 per cent; and grocery foods, soft drinks and confectionery, up 0.1 per cent.

In the year to August prices for meat, fish and poultry rose 5.2 per cent; groceries rose 1.9 per cent; and restaurant meals and ready-to-eat food rose 2.5 per cent.

Dr Bollard adopted a hawkish tone at today's monetary policy review, saying interest rates may have to be pushed higher -- from a current 6.75 per cent -- if the effects of a "temporary" rise in oil prices persisted.

He added that there was no prospect of a cut in rates in the foreseeable future.

- NZPA