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Food prices this year are likely to be affected by the mixed influence of lower beef and lamb prices versus higher dairy prices, ASB economist Jane Turner said yesterday.
The Reserve Bank, which releases its official cash rate decision this morning, largely looked through price fluctuations when assessing underlying inflation pressures.
Because inflation was likely to remain subdued over the coming year, the central bank was expected to keep the OCR on hold at 2.5% until March next year, she said.
New Zealand food prices fell last month led by cheaper meat and in-season fruit and vegetables, though milk prices rose to a nine-month high, Statistics New Zealand figures showed.
The food price index fell 0.3% in February, following a 1.9% lift a month earlier, in its sixth decline in seven months. Annual food prices decreased 0.1%.
Ms Turner said, as expected, much of the decrease in February was because of lower fruit and vegetable prices. However, fruit and vegetable prices remained elevated relative to year-ago levels, up 6.3%.
Fruit and vegetable prices fell 1.6% in February, with cheaper apples and grapes, while meat, fish and poultry declined 1.4%, led by discounted porterhouse/sirloin steak and chicken pieces.
Grocery prices were unchanged in the month, though fresh milk prices rose 2.1% to their highest level since May last year. Grocery prices were now 2.2% below year-ago levels. Non-alcoholic beverage prices rose 1.3%, while restaurant meals and ready-to-eat food prices slipped 0.1%Beef and lamb prices both fell, which likely reflected the impact of the current drought, she said.
''There has been an increase in meat supply as stock has been sent to slaughter early as on-farm feed supplies reduced. Meat prices are likely to weaken further as dry conditions continue through March.''
Food prices account for almost 19% of the consumer price index - the official measure of inflation - which is sitting below the Reserve Bank's target 1% to 3% band at 0.9%.