Australian grocery prices to rise with inflation this year
Posted On April 5, 2022
Australians can expect to see shelf prices at the nation’s biggest supermarkets to increase as inflation does, a stock analyst has warned.
Johannes Faul, Equity Analyst and Director at Morningstar, said in a recent report that food price in Australia is “well and truly underway” with forecasts that shelf prices will rise by “mid single digits” in the second half of fiscal 2022.
Currently headline inflation in Australia is 3.5 per cent, with Treasury forecasts in the recent Federal Budget anticipating inflation to reach 4.25 per cent before this financial year is over.
“Food price inflation is well and truly underway in Australia and we continue forecasting supermarket shelf prices to rise by mid single digits in the second half of fiscal 2022,” writes Faul.
“We expect these abnormally high price increases to bolster supermarket earnings in the near term, offsetting rising cost of goods sold, higher energy prices, weak population growth, greater out-of-home food consumption, and temporarily bloated supply chain costs because of COVID-related disruptions and demand volatility.”
Mr Faul said Morningstar anticipates that strong competition among Australia’s big three supermarkets in Coles, Woolworths and Aldi could eat into the bottom lines of the nation’s biggest grocers.
“We anticipate competition between the Australia’s supermarket chains including Aldi to remain intense, and the quickly expanding and expensive online channels of the majors to add more costs,” he wrote.
“A prolonged period of inflation above our base case estimate could potentially drive greater sales and earnings growth, and present an upside risk to our fair value estimates for Woolworths and Coles.
“However, we expect stubbornly high inflation, above the Australian Reserve Bank’s 2 per cent-3 per cent target range, to trigger interest rate hikes, in turn weighing on price to earnings ratios and their inversion, earnings yields.”
Earlier this year an investigation by two consumer groups, Frugl and One Big Switch, found that groceries are around 2.6 per cent more expensive than they were in 2021.
“The supermarkets are doing their best to absorb some of those costs on their own brands, so it’s worth keeping your eye on different products, using the unit pricing to compare them and maybe trying a different supermarket.
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“These strategies are going to become more important than ever.”