Food, grocery manufacturing costs are key for June inflation

The peak industry body for Australia’s food and grocery manufacturers warns unrelenting cost pressures on the sector could drive annual inflation close to seven per cent in the June 2022 quarter.

Australian Food and Grocery Council CEO Tanya Barden says the impacts of supply chain disruptions, COVID-19 and the war in Ukraine are continuing to push up input costs for the food and grocery industry. The sustained rise in costs including ingredients, fertilisers, energy, shipping and packaging has lifted global food inflation to a decade high.

Ahead of the Australian Bureau of Statistics releasing June quarter inflation data on Wednesday, 27 July, Ms Barden said sustained input cost rises meant food and grocery manufacturers were forced to seek price increases through retailers to remain viable.

“I know that businesses are going for second and third round increases because of this continuous impact of input inflation,” Ms Barden told a CEDA inflation discussion panel on Tuesday.

“Also supermarket retailers themselves have significant costs that they are needing to cover, both through COVID but also some of the profitability expectations that have built through that period and then back into the supply chain – transport and logistics, the agricultural community – are all looking at how they can pass some of these costs on.”

Ms Barden said June quarter food inflation could be six or seven per cent, up from 4.3 per cent in March.

“Overall inflation, I wouldn’t be surprised if it got closer to the seven per cent mark for the June quarter year-on-year,” she said.

Ms Barden said price pressures will persist amid ongoing global uncertainty but warned any interest rate rises to address inflation would have limited impact and must not slow the economy too much.

“There can be some moderate impact that interest rates will have but because a lot of this inflation is supply-led it does make it a lot harder to bring under control,” she said.

“Unfortunately consumers do need to understand that there is going to be, I would imagine, an 18-month period at least where inflation is going to be above what has been normal.”