By Shane Wright and Rachel Clun
Cost-of-living pressures are forcing Australians to shop around for food staples such as bread, cheese and eggs in the hope of finding a bargain, the nation’s major supermarkets have revealed, amid warnings central banks will have to keep interest rates high to bring down inflation.
Ahead of key inflation data on Wednesday that will determine whether the Reserve Bank pushes official interest rates even higher, Woolworths and Coles say consumers are likely to endure ongoing pain for food essentials.
Major supermarkets are seeing people shop around at different outlets as they attempt to deal with inflation pressures.Credit: Kate Geraghty
Food inflation has outpaced overall inflation over the past year. It was up by 8 per cent in the 12 months to the end of March while general inflation eased to 7 per cent.
Consumers, already struggling due to soaring interest rates and the largest increases in rents in more than a decade, have been stung by large jumps in the prices of certain foods. Bread (up 13.1 per cent), breakfast cereals (12 per cent), milk (16.1 per cent), cheese (16.8 per cent) and eggs (13.1 per cent) have all grown faster than the overall inflation rate.
Giving evidence to a House of Representatives economics committee inquiry on Tuesday, representatives from the two largest supermarket chains said the sharp lift in food prices had forced consumers to change their shopping patterns.
Coles’ government and industry relations manager, Vittoria Bon, said customers were being more selective in their grocery shopping as cost-of-living pressures continued to bite.
“They may have just shopped at one supermarket previously and one greengrocer. People now are more conscious about specials offered by all the retailers – so you’ve got Aldi, Coles, you’ve got Metcash, you’ve got Woolworths, Costco, you’ve got Amazon,” she said.
Woolworths supermarkets chief commercial officer Paul Harker acknowledged higher prices due to local and global inflationary pressures had been a source of frustration for customers, but said relief was starting to come through.
“Supply chains are recovering and global commodities are moderating from record highs,” he told the hearing on Tuesday.
“However, it will take a while before our food systems return to an even keel.”
Harker confirmed the majority of shoppers were moving between supermarkets hoping to find a bargain.
“In the last year, around seven in 10 of our customers have also shopped at Coles, Aldi and IGA,” he said.
Central banks around the world have pushed up interest rates in a bid to bring down inflation. The June-quarter inflation report, to be released on Wednesday, is expected to show inflation in Australia easing to its lowest rate since September 2021, but with prices continuing to climb in areas such as rent, food and household furnishings.
On Tuesday evening, the International Monetary Fund used an update to its world economic outlook to argue central banks including the Reserve Bank would have to consider more rate increases as inflation was likely to remain elevated this year and next.
The IMF expects the global economy to expand by 3 per cent this year and next, after growth of 3.5 per cent in 2022. The forecast for 2023 has been increased by 0.2 percentage points from the fund’s April expectations.
At 3 per cent, global growth would be well short of its historical norm.
Global inflation is expected to ease from 8.7 per cent to 6.8 per cent this year and 5.2 per cent in 2024, in line with the fund’s April forecasts. But underlying inflation is expected to decline more slowly than had been predicted three months ago.
According to the IMF, central banks need to remain focused on bringing inflation under control.
“In most economies, the priority remains achieving sustained disinflation while ensuring financial stability. Therefore, central banks should remain focused on restoring price stability and strengthening financial supervision and risk monitoring,” it said.
Central banks, including the Reserve, have expressed fears that their efforts to bring down inflation could be stymied by a lift in wage growth.
But the IMF noted there were still no signs that inflation pressures were being driven by workers getting higher wages.
“To date, wage-price spirals – wherein prices and wages accelerate together for a sustained period – do not appear to have taken hold in the average advanced economy, and longer-term inflation expectations remain anchored,” it said.
Treasurer Jim Chalmers said the IMF report highlighted the rough and tricky road ahead for the global economy, with ramifications for the domestic financial outlook.
“The pressures coming at us from abroad, along with higher interest rates, will inevitably see growth in our own economy slow considerably – which is what Treasury and the Reserve Bank both forecast,” he said.
“In the face of ongoing global challenges, the Albanese government’s economic plan is all about making the budget more responsible, our economy more resilient, and providing responsible cost-of-living relief that doesn’t add to inflationary pressures.”
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