Welcome to Quadrant Online | Login/ Register Cart (0) $0 View Cart
Menu
November 23rd 2009 print

Peter Smith

Shopping trolley economics

Economic recovery, when set against the wasteful government expenditure we are having and the winding back of labour market flexibility by Julia Gillard, sets the scene for inflation. But it isn’t happening yet and is unlikely to break out in the immediate future.

Supermarket food prices always seem to be going up 

Someone emailed me the other day saying that he, and some fellow shoppers he had overheard, thought that food prices were increasing in supermarkets. I asked my wife about this and she backed the view. Is inflation, at least for supermarket products, beginning to rise? That is the question. 

There are facts and fancy. When I thought about it, there had never been a time when my wife did not think that supermarket prices were rising fairly rapidly. In fact, in my experience, most people, most of the time, think that. This doesn’t mean to say that prices are not rising now but simply that we need ‘the facts ma’am; nothing but the facts’. 

Inflation is a general and persistent rise in prices; it is not about individual prices responding to temporary shortages or surpluses. Generally, we tend to notice some things more than we do others and one of them may be price rises as distinct from price falls. I would think, though I haven’t seen any studies on it, that most people who bought bananas that had risen in price and, at the same time, oranges that had fallen in price, would tend to remember the bananas. I don’t know that of course, it is just conjecture. 

The only comprehensive and reliable data at our disposal is that gathered by the ABS. This data shows that the CPI rose by a modest 1.3 per cent in the year to the September quarter 2009; it also showed that food prices, though rising by more than this over the year (2.5 per cent), actually fell back a little in the September quarter. If we look inside the food figures they show that fruit and vegetable prices fell over the year by 3 per cent and even more steeply over the September quarter, presumably due to seasonal factors. So far as I can see from the data, there is no category of food that rose steeply in price in the September quarter. On the basis of past data, there is no reason to expect a seasonal rise in food prices in the current quarter. We will not know for sure until the ABS publishes the December quarter CPI figures in the New Year, but it seems likely that there is no generalised inflation emerging in supermarket food prices. 

This is not to say that some supermarkets in some areas are not increasing particular prices and creating the impression of inflation. We don’t have the most competitive environment in Australia, with two supermarket chains dominating the market. Quite apart from this, the large acreage of supermarkets often means that just one is present in a local area, with only small shops to compete with it. 

Inflation might potentially be in the offing of course. Economic recovery, when set against the wasteful government expenditure we are having and the winding back of labour market flexibility by Julia Gillard, sets the scene for inflation (and consequently for higher interest rates to combat it). But it isn’t happening yet and is unlikely to break out in the immediate future. Credit and monetary aggregates (measured at September 2009) are growing at a much lesser rate than they were last year and the year before that. And, we have the Reserve Bank. 

For those who think inflation is on foot when it isn’t, don’t feel too bad, the Reserve Bank is even more preoccupied with inflation than you are. That preoccupation was shown, for example, in late 2007 and early 2008 when despite an upcoming general election and a global financial meltdown, the Reserve Bank continued to increase interest rates to combat what it saw as an inflation problem, when the rest of the country and the world were otherwise preoccupied. What this means is that we can rely on the Reserve Bank to spot inflation on the horizon, even when it is barely visible to others, and to take resolute and pre-emptive action by increasing interest rates. It has already started that process even though inflation has been falling so that any incipient general and persistent rise in supermarket prices would, I think, be nipped in the bud. 

But I could be wrong about all of this and asked my wife (Amanda) to give me a fresh reading when she next visited the supermarket. By the way there is nothing ‘gender-role’ about this, I would be prepared to do the shopping but am not allowed. 

Amanda later responded by instancing a tub of yoghurt which at $3.18 had not changed in price but which was now being advertised as ‘on special’ – evidence she said of the supermarket concerned preparing to raise its price. She also pointed to a newspaper report of a recent OECD survey which had Australia’s food prices, since 2000, increasing at a much faster rate than in most countries (41 per cent versus 33 per cent in the UK and Canada, for example). Graeme Samuel of the ACCC was quoted in the report as saying that this was mostly down to fresh food prices and some special factors, including drought. In the same report, a lady interviewed about all of this while shopping was quoted as saying that she hadn’t noticed any rise in fresh food prices but processed food had increased in price. Go figure.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics