Bulletin: Food retail and eating out inflation

Food retail and eating out inflation

The latest data from the ONS shows that all items inflation has risen marginally, up from 2.0% year-on-year in June to 2.2% in July, when measured by the CPI method.

Retail food and drink inflation has declined from 19.1% in April 2023 to 1.5% in July 2024. Eating out inflation is more persistent, standing at 5.1%.

See the full details of our food inflation forecasts and how this differs by category.

See our latest article What’s happening with inflation?

IGD opinion

This supports IGD’s view that inflation is now stabilising after a long period of decline. A major reason is that deep cuts in the cost of fuel and household utilities are now exiting annual comparisons.

Given the influence of the eating out market in driving overall inflation, the Bank of England may be expected to watch price change in the eating out market closely when making its decisions on changes to interest rates.

Currently, wages in the services sector (which includes eating out) are currently rising by about 4.3% year-on-year. Ongoing high wage growth in services is a key force driving inflation across the economy and, therefore, delaying interest rate reductions.

Extended producer responsibility

The government has published initial illustrative base fees for year 1 of Extended Producer Responsibility (EPR) for packaging. The government has stated that these are not final figures and intends to publish refined figures for the illustrative base fees in September 2024.

From year 2 of EPR, fees will be modulated to ensure packaging materials that have a lower environmental impact will be the least expensive for producers to use. As a reminder, EPR aims to shift responsibility of packaging waste management costs from local authorities onto large producers.

IGD opinion

This news provides a bit more clarity on EPR. However, the fees provided are only illustrative at this stage and include a range of potential fees for each material. Unlike the Deposit Return Scheme (DRS), fees are charged to businesses under EPR, rather than shoppers. DRS will create significant costs for businesses, leaving them with with a key question – do they absorb the EPR costs or do they try to recover some or all of the cost from the end user? The full effects of EPR will not be understood until fees are finalised.

Wage growth slows

The ONS has reported that pay is rising at its slowest rate in almost two years. The average UK wage increased by 4.5% year-on-year (seasonally adjusted, including bonuses) for April-June 2024. Wage growth in real terms, taking account of declining inflation, was 2.4% for regular pay and 1.6% for total pay.

IGD opinion

The slowdown in wage growth will increase the pressure on the Bank of England Monetary Policy Committee to cut interest rates again sooner. However, they will also consider other factors, including other cost pressures, when deciding whether to make changes to interest rates.

Unemployment and inactivity

The latest data from the ONS shows unemployment at 4.2% for April to June 2024, down from 4.4% for March to May 2024.  Vacancies decreased for the 25th consecutive period to 884,000. The largest decreases in vacancies were in foodservice and accommodation. Inactivity was stable at 22.2%.

GDP quarterly growth

The ONS has reported that GDP has shown no growth in June and has increased by 0.6% for the three months to June 2024. This follows growth of 0.7% in quarter 1. Services output was the main contributor with growth of 0.8%.

Business rates

Sainsbury’s and USDAW have urged the government to deliver on its promise to reform business rates. They have warned that a failure to act could lead to 17,300 retail closures over the next 10 years. Research carried out by Development Economics found that a 20% cut to retail business rates would generate more net revenue for the taxpayer and protect and create over 17,000 retail jobs which might otherwise be under threat.