Food prices are trending upwards reaching highs not seen for more than a decade – an ongoing development global economists are watching very closely.
The rising cost of food threatens ever higher weekly grocery bills and risks worsening global hunger that’s at a multiyear high.
It is also exacerbating concerns of ongoing inflation as a growing number central banks face the prospect of having to lift rates earlier than forecasted.
The Food and Agriculture Organisation’s (FAO) food price index, which tracks international prices of the most globally traded food commodities has reached its highest point since July 2011.
On a year-on-year basis, the index was up 31.3 per cent in October.
— Lou Dobbs (@LouDobbs) November 4, 2021
Agricultural commodity prices have risen steeply in the past year, driven by harvest setbacks and strong demand.
World vegetable oil prices jumped 9.6 per cent on the month to set a record high, supported by further strength in palm oil prices as labour shortages in Malaysia continued to hamper production. It comes as China urged residents to stock up on essentials as vegetable prices surged due to bad weather.
Meanwhile, cereal prices rose by 3.2 per cent in October from the previous month. That was led by a 5.0 per cent jump in wheat prices, which climbed for a fifth consecutive month to reach their highest since November 2012, FAO said.
“Tighter availability in global markets due to reduced harvests in major exporters, especially Canada, the Russian Federation and the United States of America, continued to put upward pressure on prices,” FAO said of wheat.
Global staple food prices are up 31.3% year on year.
In real terms, food prices are closing in on record highs last seen in the mid-1970s.
Let that sink in... pic.twitter.com/GYnVI8cIpJ
— Peter McCormack (@PeterMcCormack) November 4, 2021
Aussie shoppers claim to feel the pain
In Australia, last week's stronger than expected inflation figures pushed the key underlying measure to a six-year high of 2.1 per cent.
The Reserve Bank of Australia's latest forecast is that underlying inflation will be no higher than 2.5 per cent at the end of 2023.
Meanwhile the Australian Bureau of Statistics's Consumer Price Index (CPI) which measures key household expenditure based on a basket of items rose by 3 per cent over the past year.
At least anecdotally, some Aussie consumers say they are feeling the pinch.
"Groceries are insane!" commented one Reddit user in a group discussing the latest CPI data.
"Coles/Woolies prices have risen at least 10 per cent in the last year," another suggested.
Those claiming to work in the industry say they are witnessing the price rises flow through the supply chain when it comes to food ordering.
"I work as a purchasing manager in Foodservice. I have never before seen price increases like this, seriously some key products such as frying oil are up 60-80 per cent," one Reddit user said.
"All of our suppliers are increasing prices by 5-8 per cent. It will be passed along to consumers."
What do Woolworths and Coles say?
Coles actually reported on its first quarter sales last week, pointing to an overall deflation of 0.3 per cent across store items. However that was largely driven by deflation in fresh produce which has seen great growing conditions locally, and that offset inflation in other areas such as meat.
"Fresh deflation was driven by fresh produce, largely fruit, partly offset by continued inflation in meat from elevated livestock prices," the Coles report said.
So while some things were more expensive, shoppers in the first few months of this year shouldn't have seen a rise in their grocery bill, Coles says. But that could certainly change when figures come out for the second and third quarters of this year.
Woolworths chief executive Brad Banducci has warned about the potential for price rises at the checkout as the supermarket giant battles supply chain challenges.
"We started by not getting access to shipping capacity. Then there were issues about getting access to containers. And now the big issue is making sure we all get access to pallets," he told The Australian Financial Review last month.
"We just need to continue to manage this dynamically, but so far so good on actual supply."
Increases in shipping costs and price hikes in areas such as meat could feed into higher prices in the aisles, Banducci conceded.
"The real sensitivity for us, of course, is affordability for our customers. So we can see the legitimacy of the cost increases suppliers have given us, but we’ve got to be very careful on how we pass those through to our customers, in particular as we get into the festive season."
Like Coles, Woolies actually saw prices slide to begin the year.
"In the first quarter of this financial year, average prices across our range have decreased, particularly in fruit and vegetables," a Woolworths spokesperson told Yahoo Finance.
"Favourable growing conditions after recent years of drought and bushfires have delivered a bumper harvest.
"To help customers enjoy great value right through Christmas, we’ve dropped the prices of more than 200 products in store and online."