Food rise pre-GST tactic?

Press, 12 September 1986, Page 1

Food rise pre-GST tactic?

By

MARTIN FREETH

in Wellington A rise in food price inflation last month has been attributed to retailers increasing their margins while they can before goods and services tax leads to stiffer competition between them. The Acting Minister of Finance, Mr Caygill, yesterday explained a 1.7 per cent rise in the average level of food prices for August, reversing a falling trend since January. Last month’s was the biggest rise in the food price index since January, and increased the annual rate of food price inflation to 7.6 per cent, from a trough of 6.8 per cent in July. Price rises for cabbages, lettuces, potatoes, frozen and canned vegetables, bread, beef and lamb, confectionery, and meals away from home were particular contributors to the index’s rise in August. According to Mr Caygill, retailers are now experiencing high demand before GST comes in on October 1, after which consumers are expected to cut their spending and fuel new price competition among retailers. “It seems that some food retailers and suppliers may have increased their margins now in the expectation that this will be their last opportunity for some time,” Mr Caygill said.

GST will boost food price inflation next month, but Mr Caygill predicted that “when the dust settles” from the new tax, prices will resume a downward trend. That was disputed by National’s spokesman on consumer- affairs, Mr Roger Maxwell, who predicted the August rise would be the start of a food price spiral because of GST. Mr Maxwell said it was significant that last month virtually all food types included in the index rose in price, the main exception being coffee. Beef and lamb prices, in particular, had risen, reflecting improved export prices as the New Zealand dollar depreciated, he said. The Democrat’s spokesman on consumer affairs, Mr Alasdair Thompson, likewise predicted a rising “storm” in food prices would now follow GST. The Government had to be disappointed with the August index rise, Mr Thompson said. The recent fall in the index has mirrored the decline in general price inflation which set in late last year, but how the rise in average food prices in August, and perhaps again this month, will impact on the consumers’ price index for the present quarter, as the base rate before GST, remains uncertain.