Food inflation is about to peak

Date : 24 May 2023

UK inflation in April declined to 8.7% from 10.1% in March. Food inflation remained persistently high at 19.0%.

The latest inflation release from ONS shows that overall inflation in the UK has weakened, and is the first time that inflation has been below 10% since august 2022.

Using the CPI method, year-on-year “all items” inflation was +8.7% in April 2023, down 1.4 percentage points compared to March.

Downward contributors to the monthly change came in the form of falling electricity and gas prices but this was partially offset by the rise in food price inflation.

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UK food and drink prices in April 2023 were up +19.0% year-on-year, by the CPI method inflicting ongoing hardship on households.

This broadly aligns to IGD’s forecast and may indicate that food price inflation has peaked – the rate in March was +19.1%, so the new data indicates a small decline.

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IGD Viewpoint

The powerful forces which drove those price increases are running out of momentum, with prices for energy, fertiliser and some basic food commodities falling.

Despite this, due to a number of factors such as long and complex supply chains and ongoing contractual arrangements, there are still further cost increases to work through the system. This means we will continue to live with inflation for several months – which doesn’t offer much relief for hard-pressed shoppers.

However, food retail is highly competitive and businesses have a strong incentive to pass on the benefit of lower costs to shoppers promptly. This process has already begun – in April and May, several supermarkets delivered price cuts for milk, bread and butter.

There are many variables in play, with weather and crop yields always hard to predict, but – barring major new shocks – IGD believes that food price inflation will gradually begin to slow as 2023 progresses.

Find out more from IGD’s next economic Viewpoint report, which will be released on 8 June, exploring what’s next for food inflation.

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