Maybe it’s not (just) supermarket profits driving inflation

While the focus has been on the role of supermarket profits in driving inflation, especially as a result of the “exposé” last week by ABC’s Four Corners, there’s an important source of profit-led inflation that is beyond the control of supermarkets, cosy duopoly or not.

Yesterday’s monthly consumer price index (CPI) figures for January from the Australian Bureau of Statistics (in which, to the rage of the Financial Review, the expected seasonal bump in inflation failed to materialise) illustrated the continuing inflation pressure in housing, insurance — an area we’ve written about recently — and in the food and non-alcoholic beverages group. At 17.18%, food and drink is the second most important group in the CPI, behind housing at just over 22%. In fact from 2019, the weighting has risen from 15.75%.

The annual CPI rise in the food and non-alcoholic beverages group rose to 4.4% in January, up from 4.0% in December and just behind the 4.6% rise in housing. That doesn’t include fresh food: meat, seafood, and fruit and vegetables. In fact, meat and seafood prices actually fell 2% across the year. But consider the rest of the category: meals out and takeaway foods, 5.7%; food products, 6.9%; bread and cereals, 7.4%; tea, coffee, water, juice, 5.7%.

So, are Coles and Woolies to blame for pricer food groceries?

It’s not a matter of global food prices. Global wheat prices have fallen more than 25% from their most recent high last July, which makes bread inflation puzzling. If you compare the current price of around US$5.68 a bushel with the post-Ukraine invasion peak two years ago, then the global price has more than halved in that time. Global sugar prices remain high but have come off recent peaks. Canola is back to 2020 prices. So are corn and soybeans.

And why is the humble cup of coffee, tea or cocoa, or mineral or spring water, soft drinks and juices and fruit juices going up? Cocoa is currently at historically high prices, so don’t expect your hot chocolate to be getting any cheaper any time soon. But coffee prices are back to 2021 levels; tea is at 2020 levels.

These prices may be set by global markets, but when they get to retailers, their processors impose a lot of costs as well, including their own profit margins. In the cases of these products, their processors and makers are multinationals — Unilever, Nestle and JDE (Douwe Egberts and 22 other brands), along with the likes of Coca-Cola and PepsiCo in the soft drink category.

Forget Coles and Woolies — these transnational giants dwarf the supermarkets and don’t care about the pressures Australian consumers of their products might find themselves under, or the pressures on Australian retailers. They are “take it or leave it” price setters and, whatever their sins, the supermarket duopoly feels they have to take it. Perhaps it’s something for the Australian Competition and Consumer Commission to chew over, seeing it released the issues paper for its supermarket inquiry today.

European supermarket giant Carrefour, on the other hand, has decided to leave it. After campaigning against giants like Nestlé, and Unilever over “shrinkflation”, early this year Carrefour told PepsiCo it simply wouldn’t stock its range of snack foods and drinks due to “unacceptable price rises”.

It’s possible Coles and Woolies would do a lot to enhance their battered reputations if they told their consumers they were following Carrefour’s example and simply refusing to carry the products of gouging multinationals. Consumers might be happy to get on board with that. You never know.