Is the My Food Bag trading result a read through to the broader economy?
My Food Bag (MFB) released their FY23 trading update this week to the market following the completion of their first four months of the financial year. The result was weaker than they had been expecting citing the ‘marked effect on My Food Bag’s supply-side confidence in Q4 FY22, as the company and its suppliers encountered difficulties accessing staff and dealing with the flow-on problems of incomplete and late deliveries.’
This ongoing commentary from the impacts of Covid is now very much commonplace and so really of no surprise to business owners or the broader public. However, in my view what was more telling in the update was the ‘economic environment and inflationary pressure on households.’ The overall pattern from MFB households was an uptick in their Bargain Box (lower cost) offering and customers trading down to smaller bags at a cheaper price point. It doesn’t take a rocket scientist to point out that the ‘squeeze’ on many households is becoming clear to see, whether that is in the form of food prices, energy costs, mortgage costs etc.
So, the question is when will the Reserve Bank of NZ (RBNZ) start to acknowledge or become concerned around the outlook? Or is it a case that the economy is on a far firmer footing than I am portraying in this article? On Wednesday, the RBNZ are expected to deliver another 50bps increase to the Official Cash Rate (OCR) bringing the short-term interest rate up to 3.00%. To understand the broader context, in August 2021, the OCR was at a setting of 0.25%. To call that a pivot, is something of an understatement. Rising inflation has necessitated a move higher in interest rates, but it is the speed and quantum that concerns me.
Recent household and business confidence numbers suggests that the economic resilience the central bank has in the underlying economy is not shared. Furthermore, the recent dip in inflation prints globally could mean that the great price ‘re-set’ could be coming to an end, sooner than many think. You could argue that if this is the case, and inflation moderate’s quickly, that equally the RBNZ can pivot again. However, with many homeowners now fixing their mortgages for a further two and three years, they are effectively ‘locking in’ that higher cost of funding now.
Covid has been complex and had far reaching consequences across most sectors. Let’s hope the RBNZ have called this correctly and there is the capacity for households to absorb these higher cost pressures, otherwise it could be a steady diet of mince and tap water.