Supermarket price increases accelerated over the past three months of 2022, with Woolworths leading the charge, according to research by investment bank UBS.
The bank's Evidence Lab tracks the online prices of more than 60,000 different products at Australia's two main supermarket groups, and found food price rises averaged 9.2 per cent over the three months to December 31.
Woolworths has had bigger price increases than its major rival, Coles, for the past two quarters, with an increase of 8.4 per cent over the year to September 30, accelerating to 9.3 per cent by the end of last year.
Coles raised its prices by 9.1 per cent over the year to December 31, versus an 8.1 per cent increase over the year to September 30.
Analysts at UBS suggested this was related to more-aggressive discounting by Coles as it sought to make up market share on its larger rival.
"Coles is maintaining promotional depth and breadth ahead of Woolworths, arguably reflective of it seeking to differentiate on price as per its period of market share gains in the early to mid-2010s and following market share losses in recent years," they wrote.
However, Coles price rises were accelerating into the end of the year (reaching 9.8 per cent year-on-year in the month of December), while Woolworths increases were starting to slow (to 8.9 per cent year-on-year in December).
The two big rivals also had a very different split between fresh and "dry" groceries: Woolworths had much steeper price rises for fresh produce (10.3 per cent versus 8.9 per cent for Coles), while Coles raised prices more on other groceries (9.2 per cent versus 8.9 per cent at its key competitor).
Food and grocery price rises have been a key contributor to inflation in Australia, which is at three-decade highs, with an increase of 7.3 per cent over the year to November, according to the Australian Bureau of Statistics (ABS).
The latest official inflation figures will come out on Wednesday and are generally expected to show that consumer prices across the economy rose 7.5 per cent over the year to December.
Most economists, including the those at the Reserve Bank of Australia (RBA) and the federal Treasury, expect inflation to have peaked at the end of 2022, before falling this year and next.
However, the UBS analysts warned consumers not to expect price pressures to ease quickly in their weekly shop.
"Food inflation is expected to continue," they wrote.
"Trade feedback indicates cost pressures remain — e.g., supply chain, specific product inputs — and are, arguably, still rising for dry grocery suppliers with further cost increases expected to support dry grocery inflation for the remainder of financial year 2023."
Dairy shortages lead fresh food price rises
A separate report from UBS out on Monday, January 23, on key fresh food products showed that dairy continued to lead inflation pressures.
Dairy prices rose 14 per cent over the year to December, led by a 24 per cent surge for cheese and 18 per cent jump in butter.
"We are growing increasingly concerned with the weakness in Australian milk production — (which is down 7 per cent year-to-date)," the UBS analysts noted.
"Industry body FreshAgenda recently released forecasts for a 6-7 per cent fall in financial year 2023, and an additional 3-4 per cent decline in financial year 2024 to 7.7 billion litres.
"This will likely further intensify an already highly competitive milk procurement market, which has had a negative impact on processors."
Meat prices were up 10 per cent, with pork (+16 per cent) and lamb (+10 per cent) leading the way, while chicken was up a more moderate 6 per cent.
"Chicken continues to present itself as the best-value protein," the analysts wrote.
"In the face of rising household cost pressures, we will be interested to see if this has driven above trend volume growth."
One bright spot, at least temporarily, was relative stability in fruit and vegetable prices overall, which were up just 1 per cent on a year earlier.
Tomatoes and oranges contributed big declines, to help offset rises in the cost of mandarins and mushrooms.
