8 Apr 2015

Australian price drops unlikely in short term

6:33 am on 8 April 2015

Retailers and economists say it will take a while for shoppers to see goods imported from Australia drop in price, if at all, despite the relative weakness of the Australian dollar.

Higher prices for fruit, yoghurt and chicken pushed up food prices in December.

Higher prices for fruit, yoghurt and chicken pushed up food prices in December. Photo: 123rf

The New Zealand dollar was close to matching the Australian currency at the weekend, though it traded slightly lower again yesterday when the the Reserve Bank of Australia kept interest rates on hold. Despite this, economists say there is a strong chance the currencies will reach parity.

The Australian dollar began to flag in November last year, so five months on should shoppers be getting more for their money when it comes to goods brought in from across the Tasman?

Retail New Zealand's general manager of public affairs, Greg Harford said probably not.

"For imported products there's a range of factors that contribute to the price, that includes things like wages, transport, rents and demand for product, so the exchange rate is only a relatively small component of the retail price of a grocery item, and across the basket of grocery it's going to be pretty difficult to determine a price impact in the short term."

Two-way trade between New Zealand and Australia is valued at about $24 billion a year, with Australia's top exports to this country being wheat, chocolate, cars and aluminium.

Valued at $199 million, wheat is Australia's third biggest export to New Zealand.

Greg Harford said it would take a while to see if any reduced cost in the raw product would have any affect on baked goods, pasta and other wheat-based processed food.

"Products that are manufactured in New Zealand using wheat will certainly be impacted by that price change, but again the cost of that raw products is only one component that goes into the finished retail price."

Michael Gray, president of the Baking Industry Association, owns Nada Bakery in Wellington. He said bakers here have seen no sign of falling flour prices.

"Wheat is generally purchased not in the spot market, but relatively over longer term contracts, and a lot of bakeries out there have contracts with flour mills that can run for three to six months.

"So we don't notice any change now, but we may notice in the near future as these contracts come up for renegotiation."

If anything, it may mean prices of baked goods hold, as the price of other ingredients like meat and dairy remain high.

ASB Bank chief economist Nick Tuffley said over time there should be some impact on the price of goods imported from Australia

"It can depend on things like the extent to which importers have exchange rate cover that's in place, and waiting for that to wear off for example, but you would expect overtime the impact to come through, particularly in areas where there is a lot of competition, so the new car market might be one such example."

No one from the country's two main supermarket chains, Progressive Enterprises and Foodstuffs was available to comment on whether they expected prices of their Australian products to fall.