High food prices becoming entrenched in economy warns analyst

High food prices are now embedded in the economy, a retail analyst has warned, following the release of new inflation data on Wednesday.

Egg prices surged 11% last year, and the cost of cooking oil is up 7%; lamb prices have jumped 17%, while shoppers are paying about 6% more for fruit and vegetables. Beer prices have also lifted by 4%.

Even as the worst of the inflationary pressures begin to ease, increases in food and beverage prices are still outpacing long-term averages, according to data from the Australian Bureau of Statistics, with little relief in sight.

Rabobank's senior food retail analyst, Michael Harvey, stated that steeper food costs are becoming ingrained in the economy and will be an "ongoing" reality for consumers.

"We don't see another wave of price increases coming through, but there's also no sign of decreases; there's not a lot of downward pressure," Harvey said.

"Cost of living pressure is not new, and it's ongoing. Consumers will need to continue to respond to the high food prices in terms of their purchasing decisions."

Australia's consumer price index fell to a lower-than-expected 2.4% in December, according to the ABS annual figures released on Wednesday, prompting the federal government to declare that the "worst of the inflation challenge is behind us".

However, there are still sectors of the market experiencing significant price increases.

The food category rose by 3% in 2024, although the increases are not uniform across the board. While the price of dairy products has shown a slight decline, the price of cooking oils continues to soar, having increased by a cumulative 40% over the past few years.

Specific issues have affected some food prices, such as the impact of avian influenza on egg availability, leading supermarkets to impose purchase limits.

Cocoa prices remain elevated due to production issues in West Africa, resulting in steep price rises in confectionery items. Lamb prices saw a significant increase last year, coming off a low base after plummeting in 2023.

Harvey explained that higher prices become "embedded" due to production cost increases resulting from higher inputs like fuel, fertiliser, and wages, along with elevated packaging and distribution costs for manufacturers.

"Food companies have passed through those high costs to consumers," he noted. "It's also about margin recovery and just reflecting the fact that things are still expensive to produce."

Many food manufacturers and supermarkets have utilised the inflationary period to recover or even expand their profit margins, particularly in sectors with limited competition, such as Australia's tightly held supermarket sector.

Rabobank analysis indicates that the rate of annual food price increases is still above the 10-year average.

Ronni Kahn, the founder of food rescue group OzHarvest, reported that even individuals with jobs and mortgages have turned to the organisation as they struggle to afford life's essentials.

"It's a new demographic for us," she said. "We're seeing nurses, we're seeing teachers, we are seeing people who've got jobs and who cannot make ends meet."

"State and federal governments absolutely need to recognise that there is a food insecurity crisis and must increase funding to food relief organisations like us so that we can help feed more people."

Kahn remarked that fresh produce is in high demand due to its rising costs, and eggs have become scarce.

"We might just put eggs into little cartons of four or six and try to match need with demand. But again, we certainly don't have eggs every day."