KEY POINTS:
The price of cheese and butter skyrocketed over the past year, and dairy prices are expected to keep rising.
In the year to January, a 500g block of butter soared in price from $2.04 to $3.77 - an 85 per cent increase.
And for the same period, a 1kg block of mild cheddar cheese shot up in price from $6.42 to $10.47 - a 63 per cent increase.
In the year to January, food prices increased overall by 4.4 per cent.
While the increase may be good news for the dairy sector and the New Zealand economy, it's bad news for shoppers.
Last month, cheese and butter prices increased more than 14 per cent, Statistics New Zealand revealed yesterday in the latest food price index. Food prices overall increased last month by 0.4 per cent.
While international dairy commodity prices are set to ease from now on, Westpac senior economist Doug Steel said consumers could expect to see an increase in dairy prices in the first half of this year, but the rate of increase would slow in the second half.
"We think there's some further price pressure from those previous increases on world markets. They are still in the pipeline to come through to the supermarket shelf."
But he said it would be difficult to estimate how much prices would increase, or if and when prices might level off or come down. Commodity prices would have to fall substantially before shop prices were affected.
But factors such as the New Zealand dollar and the price of oil would also play a big part in determining shop prices. "From the consumer point of view, increases in the necessities of food and petrol are certainly putting a lot of pressure on the household budget."
He said dairy prices were increasing because of the world market, with increased demand from growing economies such as China, India, Russia and Brazil.
Fonterra Brands NZ managing director Peter McClure said yesterday that lower dairy production in drought-stricken Australia, continuing reductions in export subsidies for European producers and strong international demand had boosted dairy commodity prices to unprecedented levels.
"Fonterra Brands, the part of Fonterra that produces consumer products in New Zealand, pays the same prices for the commodities that go into its products as do Fonterra's international customers.
"Some of the rising cost is absorbed through increased efficiencies, but ultimately some is also passed on in wholesale prices for dairy products. It is up to retailers if and how much of any wholesale food price rises are passed on to consumers," he said.
Last month's increase in food prices was mainly due to higher prices for items such as cheese and butter.
Meat, poultry and fish decreased overall by 1.3 per cent. Within this group, fresh chicken decreased 4.3 per cent and beef 1.4 per cent, while ham increased 3.1 per cent.
