From: Victoria Thieberger, Reuters, MELBOURNE
Published January 11, 2011 06:51 AM

Australian floods could send food prices soaring

The worst flooding in the Australian state of Queensland in 50 years could push up the nation's fruit and vegetable prices by as much as 20 to 30 percent, lifting inflation and potentially dampening retail spending.

Economists and the country's top supermarket chains said new, torrential flooding and rains across farmlands in southeastern Queensland in the past day had damaged crops and cut roads, preventing moving goods to market.

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Unlike some previous natural disasters, which affected a smaller geographic area and a narrow range of foods, many vegetables are likely to be affected. In 2006, Cyclone Larry caused a spike in banana prices and this alone helped to lift the overall inflation rate.

"I think this will actually dampen discretionary spending during this period," said ANZ Bank head of Australian economics Katie Dean, referring to spending across the entire economy.

"In the case of the bananas (in 2006), we just stopped buying bananas. But this is a very broad range of fruit and veggies that will be affected, the grocery bill will inevitably rise as the substitution ability is less," Dean said.

Australian retailers have already endured a tough few months as cautious consumers spend less and save more.

Retail sales in November rose a moderate 0.3 percent and were up just 1.3 percent from a year earlier, compared with historic growth of about 6 percent per year, while the national savings rate has topped 10 percent.

Photo credit: Geoscience Australia

Article continues: http://www.reuters.com/article/idUSTRE70A11320110111

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