IGD has issued a new UK food price inflation forecast covering 2023 and 2024.
Food price inflation is believed to have peaked at +19.1% YOY in Q1 2023, which is broadly in-line with IGD’s previous forecasts.
Inflation is now expected to fall slowly as 2023 progresses, ending the year at +8% to +10% and turning slightly negative in late 2024. Average inflation over 2023 will be +14% to +16%.
This offers a measure of good news for hard-pressed shoppers, but the price of a typical weekly grocery shop is not expected to fall back to previous levels within the forecast period.
The “unwinding” of food price inflation is expected to run behind “all items” inflation, for several reasons, including:
- Previous cost increases have not yet been passed on down the supply chain, margin pressure is intense
- Prices for many basic food commodities remain elevated for now
- Some costs are likely to be “sticky”, especially labour
- Rising costs for regulatory compliance (eg: border management, environmental protection)
This means that food and drink will likely make up a larger proportion of inflation pressure as inflation declines. Currently, food makes up about a quarter of CPI inflation pressure but, by the end of the year, it could be half.
If this analysis is correct, this would represent a major reputational hazard for the industry, as we have noted before.
In fact, this issue is already starting to emerge, with media coverage of food prices becoming increasingly challenging.
UK food businesses must continue to focus on managing cost and delivering the benefit of savings to shoppers – most shoppers appreciate affordable food and some need it.
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To learn more about our latest inflation forecasts and the impact on industry and consumers, download our new report Viewpoint Special: Exploring what’s next for food inflation
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