Soaring food prices and less cash to spend

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Food is tipped to become up to 10 per cent more expensive than it was a year ago.

Institute of Economic Research principal economist Shamubeel Eaqub is predicting that by March, food prices will be 8 to 10 per cent higher than they were last March.

He is basing his forecast on the ANZ commodity index, which shows the price of "soft" commodities, including dairy foods and grain, went up 30 per cent this year.

Mr Eaqub said food prices usually followed commodity price rises within about nine months, and although they didn't rise "one to one", he was expecting a sharp increase in food prices.

He believed next year would be even tougher than this year, as households were hit with extra costs from October's rise in GST, increasing costs of fuel, higher ACC levies and taxes from the emissions trading scheme.

"The bottom 60 per cent of income earners are worse off than they were last year. I think the early part of 2011 will be pretty difficult."

While commodity price rises were good for farmers, who got more for their produce, they meant only bigger grocery bills for everyone else.

Mr Eaqub also predicted more empty shops by February as retailers felt the pinch.

He believed spending was down by about 1 per cent on last year.

The fact that many shops were having more sales offering higher discounts showed they were struggling to get people spending.

"If you're a retailer, this really does suck. People have gone from spending a lot of money to spending a lot less. Everybody's living within their means now - in aggregate anyway.

"We're not seeing people using credit cards as much, they're not borrowing as much money, they're paying down debt and there's just less money to go around.

"There's a mood of caution that prevails right across the economy and in that kind of environment, you're not going to have massive amounts of spending."

The latest Statistics New Zealand food price index shows prices rose 4.8 per cent in the year to November.

Mr Eaqub said consumer spending after the recession would remain subdued for five to seven years.

"We're only a couple of years into this ... We've been talking about it for a decade, right?

"Now that it's happened, it's like, 'Why isn't it over yet?' Well, it took us 15 years to get into this mess, do you think it might take a few years to get out of it?"