Bulletin: Red Sea, inflation and labour
18 January 2024Featuring the latest updates on inflation, food inflation, the conflict in the Red Sea and the labour market.
Food inflation falls
Food price inflation continued to decline from 9.2% to 8% in December, in line with IGD’s expectations. Dairy products and proteins made significant contributions to this slowdown.
We are releasing our new food inflation forecasts next week as part of our Viewpoint Report: With food inflation fading, what’s in store for 2024? Register now and be the first to receive the report.
Read our full analysis of the latest inflation results.
IGD Viewpoint: Food price inflation has run ahead of wages and most other forms of income throughout 2023, leaving many households under severe pressure.
2024 may offer some relief but given the relentless pressure of household resources over the last few years, it will be some time before they are able to rebuild their prosperity.
Overall inflation rises
"All items" CPI inflation rose slightly from 3.9% in November to 4.0% in December. This small step-up reversed the established trend of slowing inflation, driven by tax rises for tobacco and alcohol products.
IGD Viewpoint: Inflation remains well above the government’s target rate of 2.0% year-on-year, but the downward trend is encouraging, and it should support recovery in real shopper incomes.
Falling inflation has led to some analysts anticipating interest rate cuts. Both the ECB and the Bank of England have sought to manage these expectations, however.
Red Sea update
US and UK forces have responded to Houthi militia attacks on shipping in the Red Sea, mounting strikes against multiple targets in Yemen.
The number of ships transiting the Suez Canal has fallen sharply as ships are re-routed around the Cape of Good Hope adding journey time and cost. The cost of global freight has also jumped sharply.
IGD Viewpoint: Problems in the Red Sea are not expected to have a significant impact on availability or price overall for UK food and drink – although there may be category-specific effects. In the short-term, changes to UK border operations have greater potential to impact shopper experiences and businesses should continue to focus here.
To get the latest strategic update, read our article on the conflict in the Red Sea.
Real pay rises
Average pay is continuing to grow ahead of inflation, giving households a real pay boost, but growth is beginning to slow. Average total pay in September to November was up 6.5% year-on-year. Total pay levels have flatlined since June 2023.
IGD Viewpoint: With wage growth slowing and the economy stagnating, households will remain under pressure for the foreseeable future. Price and value will remain a powerful factor in the UK grocery market in 2024.
Vacancies continue to fall
Vacancies across the UK continued to decline, down to 934,000 in the period October to December 2023. Vacancy numbers fell on the quarter for a record 18th consecutive period, the longest run of falls ever recorded. However, vacancies remain over 130,000 higher than their pre-pandemic level.