Bulletin: From fuel to food, inflation building

Middle East briefing

Middle East conflict impact on food inflation

Food and drink inflation rose to 3.7% in March (up from 3.3% last month), with confectionery, meat, fish, and soft drinks the most affected categories. This confirms food prices are already moving higher, not just a future risk.

Much of this reflects cost pressures already in the supply chain (e.g. labour costs), rather than the immediate impact of events in the Middle East.

Geopolitical events are having an impact initially on forecourts, where prices at the pump have already risen. The key question now is pace and persistence of pass‑through: over time, we expect cost pressures for food businesses to increase; these will pass through the supply chain and, eventually, to food shoppers.

Events are also affecting outlooks: latest IGD ShopperVista data shows shopper confidence has dropped to -4, its lowest level since August 2023.

See our recent article: Middle East ceasefire: Impact on food inflation forecasts.

IGD opinion

The current ceasefire may slow further upward pressure, but it will not reverse costs already incurred, and the effects will unfold over the months ahead. Pass-through will vary by category, with price changes for salads and fruit and vegetables likely to feed through more quickly. Our  forecasts remain unchanged that food inflation could briefly reach over 8% by June 2026 if disruption to global energy markets persists (our most severe, but short-lived, energy shock scenario).

Middle East conflict hits recovery

Renewed conflict in the Middle East is lifting global input costs (especially energy, but also fertilisers and plastics). While commodity prices haven’t yet reached the peaks seen after Russia’s invasion of Ukraine in 2022, the timing is still problematic.

Higher energy costs act like a tax on growth, slowing real income recovery and weakening demand. The UK economy looks more vulnerable than in 2022, raising recession/stagflation risks and likely pushing back any volume recovery in food retail and away from home.

See our latest article: Middle East Briefing: Growing risks to volume recovery.

IGD opinion

This is less likely to trigger a fresh 2022-style inflation shock than to prolong weak demand. Expect further pressure on volumes, stickier value-seeking behaviours, and uneven market impacts.

Middle East volatility squeezes households

A new macro-outlook warns that renewed Middle East-driven energy volatility could still deliver a meaningful hit to UK household finances, even if the shock is smaller than in 2022. It estimates that if energy prices returned to recent peaks, British households’ energy, and fuel spending in 2026 would be around £11bn higher than if prices had stayed at early‑2026 levels. With the IMF and OECD both marking down UK 2026 growth by 0.5ppt, the report argues against overreacting on rates and recommends that any fiscal support should be timely, targeted, and temporary.

Labour costs stay sticky

Latest labour market data shows that vacancies are easing from post-pandemic highs, but wage pressure still matters for costs: average weekly earnings growth eased to 3.6% (regular pay) in Dec 2025–Feb 2026. Overall unemployment fell to 4.9% (from 5.2%), but pressures aren’t uniform, 18–24 unemployment rose to 14.3% (from 13.7%).

However, workforce strain across food manufacturing, logistics, retail, and hospitality remains a structural cost driver. Pay rises, overtime and agency use rarely unwind quickly, while skills gaps can limit throughput and flexibility. This keeps pressure on operating costs and reduces the sector’s ability to absorb disruption, making food inflation harder to shift and volatility more likely.

See our latest article: Workforce pressures impact food inflation and resilience.

IGD opinion

Labour is now a core inflation and resilience risk. Plan for sustained workforce costs, invest in skills and productivity, and build contingency capacity to reduce exposure to shocks.

UKRI dialogue on ultra-processed foods

A year-long UK Research and Innovation (UKRI) public dialogue has found that consumers are surprised by the scale of ultra-processed food (UPF) consumption in UK diets and frustrated by the lack of an agreed scientific definition. Trust in food companies is low, with participants describing health-oriented labelling of UPFs as misleading. Most are not calling for dramatic regulatory action yet; they want the science to come first.

See our article: UKRI: Making sense of ultra processed foods.

IGD opinion

IGD sat on the Oversight Committee for this project. We support a science-led, consistent definition of UPFs as the foundation for future research, policy, and industry action.

UK Tobacco and Vapes Bill update

The UK Tobacco and Vapes Bill has completed its passage through Parliament, with both the House of Commons and House of Lords agreeing the final text. The legislation is now awaiting Royal Assent before becoming law.

The Bill is designed to create a “smoke‑free generation” by prohibiting the sale of tobacco to anyone born on or after 1 January 2009. It also gives ministers new powers to regulate vaping and nicotine products, including controls on flavours, packaging, marketing and where products can be used.