Costa Group reported a weak FY22 result with sales up 11%, but EBITDA down 2%. The quality of its citrus crop dragged down pricing and profit margins significantly. Elsewhere, berries and mushrooms showed good pricing growth, while tomato prices were down. The company had high cost growth in FY22 and there will be additional freight and wage cost headwinds.

Australian retailers will deliver good results for the upcoming reporting season in February and March 2023, once again mystifying many that worry about higher interest rates. While reporting season will reveal impressive earnings for most, we are becoming more cautious. It may sound like a contradiction, but this set of results is likely a peak and earnings could fall meaningfully over the next 18 months as sales growth falls below cost growth.

Australian inflation for the September 2022 quarter was 7.3% with retail categories making a meaningful contribution to the price growth. Packaged grocery inflation was at its highest in more than 30 years. Retail inflation is starting to move above the sweet spot in our view. The magnitude of inflation will start negatively impacting volumes. This is more likely the risk in supermarkets, furniture and auto parts. Nevertheless, overall retail sales will continue to be propped up by price inflation over the next 12 months.