Cost of fresh food soars 10pc with more pain on the way

A basket of fresh and dried groceries at the nation’s supermarkets peaked at 9.8 per cent in March, according to a new report.

Fresh food inflation hit a peak of 9.8 per cent in March, while average prices for a basket of fresh and dried groceries at the nation’s supermarkets remained elevated at 9.1 per cent for the third quarter, according to the latest food inflation report from UBS.

UBS also has unveiled that food inflation is running at more than double the rate experienced a year ago.

And while Woolworths and Coles have broadened their discounting and promotions across the supermarket aisle to help alleviate the pressures on consumers and their household budgets, higher prices at the supermarket checkout are expected to remain in place for the near future.

The continued high peak for food inflation – both fresh food and dried groceries – comes as households face rising bills such as mortgages and rent, as well as other cost of living pressures that are all contributing to inflation and which could force the hand of the Reserve Bank next month to raise interest rates.

Higher food and grocery prices in particular have been a painful bill for many consumers and has seen many shoppers shift their spending habits to picking up cheaper groceries, such as private label brands.

The latest price tracker from UBS has revealed that this food inflation pressure has continued into the new year.

It found that food inflation for the third quarter averaged 9.1 per cent, down from 9.2 per cent in the second quarter but still higher than the 8.2 per cent inflation witnessed in the first quarter, and 5.6 per cent recorded in the fourth quarter of 2022. It is more than double the food inflation rate of 3.9 per cent in the third quarter of 2022.

By month, food inflation in March was 9.4 per cent, 8.8 per cent in February, and 9 per cent in January.

Fresh food inflation has outpaced dried grocery inflation at the supermarkets according to UBS.

There was a split between the prices for fresh and dried or packaged groceries with fresh food inflation outpacing dried. By month, fresh food inflation was 9.8 per cent in March, 7.7 per cent in February and 9.1 per cent in January. This was against dried grocery inflation of 9.1 per cent in March, 8.9 per cent in February and 9.1 per cent in January.

“Inflation for March was 9.4 per cent, higher than the third quarter and in-line with December inflation peak, driven by a step up in fresh inflation, which had been reducing,” said UBS analyst Shaun Cousins.

“Food inflation is forecast to moderate yet remain elevated due to ongoing supply chain, for example, pallets, labour, domestic freight and specific input pressures.”

Mr Cousins said there had been greater breadth of discounting and promotions across more items at the leading supermarkets over the third quarter – although Woolworths and Coles were using different pricing strategies.

“Rising promotional breadth reflects some improved supply and efforts to meet the needs of consumers. Lower promotional depth is arguably how Woolworths is seeking to manage high inflation, whereas Coles retains elevated promotional depth as it seeks to regain lost market share.”

The UBS analyst said there was evidence that Coles was offering deeper promotions across its groceries on sale when compared to Woolworths and this could point to the nation’s second largest supermarket trying to claw back market share after a dip through the early years of Covid-19.

“Coles lost market share during Covid, Woolworths gained market share and we would see Coles seeking to regain some of the lost market share during Covid using a variety of approaches, promotional depth appears to be one of those.

“Coles seems to have greater promotional depth and we think part of that is that Coles has had a strong value focus going back to its period of success during the early to mid 2010s where its ‘down down’ campaign and a high degree of 50 per cent off promotions were a real feature.

“That seems to be a thematic that is playing out in the offer they are continuing to provide customers. Woolworths in contrast is offering promotions but doesn’t have the same promotional depth and is potentially relying on other elements of its offer, such as its store network and its online penetration.”

Further insight into food inflation and the strength of the Australian consumer will be revealed when major supermarkets Woolworths and Coles reveal their latest trading performance. Coles will release its quarterly sales update on April 28 and Woolworths will issue its quarterly sales results on May 2.