Inflation data from ONS show that “all items” annual inflation for the UK edged up slightly in the latest month, moving from +0.7% in September to +0.9% in October, when measured by the CPI method.
(Users should treat current inflation data with caution, however, since the ability of shoppers to access some items in the inflation “basket”, such as holidays or foodservice, is limited in 2020 due to Coronavirus).
Prices for food and non-alcoholic drink rose by +0.5% in October, suggesting that food is becoming less expensive, relative to the overall cost of living. Price change for utilities and motor fuel remains negative.
This is good news for food shoppers since there is evidence that pay growth has slowed to near-zero throughout 2020.
Research by CIPD shows that private-sector employers anticipate little or no pay growth in the year ahead. The picture for public sector employers is somewhat better, but even here most will not see wages rise much.
Looking ahead, the Bank of England forecasts that inflation will pick up in late 2021, returning to the target rate of +2.0% fairly quickly.
IGD and other sources anticipate that, with or without a trade deal, EU Exit will be inflationary in the food and drink market and so retail prices in these categories will likely pick up in early 2021.
These effects may also be amplified by other inflation factors, especially poor weather in 2020, which impacted some UK farm yields.
Defra data shows that farm output prices in the UK have trended up through 2020, with price increases for most crops (except potatoes).
Animal products saw less price change, but prices here may pick up as the higher cost of fodder is passed on down the supply chain.
Source: Defra, November 2020
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