THE era of shrinking supermarket bills is now over, a leading expert says, but there is reason to believe grocery costs won’t spiral upwards — more competition.

Michael Simotas, author of Deutsche Bank’s supermarket price index, told News Corp Australia the period of “aggressive deflation” had passed.

It began in 2010 when the end of the long-running drought increased supply, just as the Australian dollar started a run that took it from US83c to nearly $1.10, cutting the cost of imported shelf items. Meanwhile Coles, under new owners, emerged from a malaise to give Woolworths with a run for its money for the first time in years.

Rick Parfitt and Francis Rossi, from the band Status Quo, which reworked its ’70s hit ‘Down Down’ for Coles in 2012.
Source: News Limited

If you think your grocery bill didn’t fall, it could be because you changed what you bought.

Nielsen research has shown discounting was most intense at the top end of product ranges, enticing many shoppers into trading up and therefore spending more.

While the measures Coles and Woolworths report indicate prices (including “promotions”) are still “down down”, the Deutsche index is now in an “up up”-swing — five consecutive quarters of rises in the aisles.

Coles said yesterday it was “proud to have recorded cumulative food and liquor deflation of 5.2 per cent over the past five years” saving an average household $570 annually.

Woolworths declined to comment.

But Mr Simotas said the pair would face growing pressure from rapidly expanding Aldi.

That would ensure “there is (still) a strong focus on value for consumers”.

Aldi’s sales grew 13 per cent in 2014 and are tipped to increase by another 50 per cent over the next five years to more than $9 billion annually.

CEO of Aldi Australia Tom Daunt, who has foreshadowed sharp sales increases.
Source: News Corp Australia

Consumers should also benefit from savings outside the supermarket.

HSBC economists have cut their 2015 inflation forecast to just 1.9 per cent from 2.4 per cent, believing recent savings at the bowser will be sustained.

The other benefit of lower inflation, HSBC says, will be that the Reserve Bank of Australia will probably leave interest rates at historically low levels into 2016. The bank had been tipping an increase later this year. HSBC’s chief economist, Paul Bloxham, was formerly a high-ranking RBA boffin.

Other economists believe the RBA will be more bold. ANZ number-crunchers predict low inflation will give Governor Glenn Stevens and his central bank board the latitude to cut the official cash rate to just 2 per cent by May in a bid to stimulate economic growth. The cash rate is currently 2.5 per cent and hasn’t been lowered since August 2013.

RBA governor Glenn Stevens, who leads the central bank board’s deliberations on interest rates.
Source: News Corp Australia

The Australian Bureau of Statistics will report the 2014 national inflation figure — the Consumer Price Index — on Wednesday. The outcome is tipped to be less than 2 per cent.

Along with fuel, the biggest falls are expected to be in audiovisual equipment, utility bills (due to the removal of the carbon tax) and clothing.

Low inflation is a godsend for many households because pay rises have been getting smaller. When wage growth fails to keep up with inflation, the cost of living increases.