Food Inflation at Record High
Food inflation has hit its highest point in three years, owing in part to a weak pound.
Prices climbed faster than they have in recent times during May, with import prices going up and up due to the falling currency.
Food Inflation Rising
The British Retail Consortium, which measures prices of 500 goods from month to month, found that May saw a food inflation rate of 1.4%. This was up from April’s 0.9% and represents a huge jump, one that consumers and those with supply chain jobs may have noticed for themselves in stores.
Inflation as a whole actually fell during the month, with non-food items seeing a significant decrease which offset the rate of the food items.
Processed food had the highest increase in inflation, according to the BRC, at a rate of 1.8%. Fresh food, meanwhile, was up from 1% in April to 1.2% in May.
The Brexit vote in June 2016 is still having an effect on the industry, with the British pound sterling value having fallen 16% since that date. This is one of the biggest reasons behind the inflation rates, most of which are driven by import prices.
BRC chief executive Helen Dickinson said: "With shorter stock turnaround times, the impact of the weaker pound has already started feeding through into food prices, although food price inflation this month is still well below the input cost price increases being faced by retailers."
Interestingly, non-food items have seen the opposite effect in May. The prices of those goods are an average of 1.5% lower than they were a year ago. That’s an impressive result for the industry, but it may well see some fall coming due to recent fluctuations in the pound’s value.
The weak start to the year may have prompted many brands to opt for heavy discounting, which will also have contributed to the fall in prices. Some businesses will also still be protected by hedging contracts, meaning that they don’t yet feel the currency fluctuation.
Strangely, however, consumer confidence appears to increased during May by two points. That’s according to another study by the same firm, which shows the Consumer Confidence Index now at -5 points – good news for those with food industry jobs.
"We have an unexpected uptick in the barometer this month as consumers report increased confidence in their personal financial situation, the wider economy, and future plans for shopping and saving," said Joe Staton, head of market dynamics at GfK. "Although the overall index score is bumping along in negative territory, we haven't seen any significant fall of the kind we might expect during such periods of pre-election and pre-Brexit uncertainty."
The most recent figures from the Office for National Statistics suggest that sales in April were above expectations. They actually rose by 2.3% from March. With this recent fall in inflation, at least for non-food goods, we may expect to see that trend continue into May as well.
Hard to Predict
The latest figures only press home the fact that, especially at times like this, economic growth is very hard to predict. Those measuring the UK market since the introduction of the Brexit vote have seen hugely differing results. As time moves on, consumer confidence appears to grow – even as the pound falls, something that would normally be expected to lead to lower confidence.
The uncertainty will only continue over the next few years as we move on with the Brexit process. The decisions that are made about the UK’s access to European markets, the rules we will and will not retain, and our relationship with the EU will also affect the food and drink industry.