Food inflation rising – is it just us?

What’s going on?

The Bank of England’s Monetary Policy Committee (MPC) is struggling to bring Inflation  back to the government’s 2.0% target (±1%). Despite weak consumer demand, inflation has remained above 3.0% for five consecutive months. Notably, food and drink inflation is now at 5.1%, contributing significantly to the overall rate.  

Why food prices are rising

The drivers of food inflation in the UK are primarily supply-side:

• Higher wages

• Increased energy costs

• Rising food commodity prices

• Growing compliance and regulatory costs

These pressures are not unique to the UK. Many advanced economies are experiencing similar cost increases, particularly in energy and commodities.

How the UK compares

Eurostat data shows that UK food and drink inflation is above the EU average and higher than many economic peers and neighbours. However, it is not a statistical outlier. All countries sampled have seen food inflation accelerate during 2025.

What explains the differences?

Several factors influence how inflation manifests across markets:

• Market dynamics: Price competition and consumer sensitivity

• Natural advantages: Local food production and transport costs

• Sales mix: Consumer preferences for inflation-sensitive goods

• Statistical effects: Differences in inflation measurement methods

Government policy also plays a role, including:

• Currency fluctuations

• Monetary policy

• Regulatory changes (e.g. minimum wage, promotion restrictions)

• Taxation (e.g. fuel, packaging, labour, trade tariffs)

In the Eurozone, monetary policy and currency effects are shared, but national regulations still vary.

All these things are, potentially, within the influence of government and could be changed fairly quickly.

Impact of government on food prices

In the UK, recent government actions have added to the cost of operating food businesses, especially a series of large increases in the National Living Wage.

IGD estimates suggest that about two-thirds of current inflation effects originate with normal “market” factors, such as the interplay of supply and demand in commodity markets.

The other one-third originates with government policy. Some policy changes are one-off (e.g. Deposit Return Schemes), while others are recurring (e.g. annual changes to the National Living Wage).

So, the government could help to manage food price inflation by limiting interventions in the market.

However, many of these interventions are intended to create social or environmental benefits, so there would be “costs” attached to non-intervention as well.

Opportunities for collaboration

There is scope for government and industry to work together to optimise regulation—maximising benefits while minimising costs passed on to consumers.

Driving growth through the food system

Government intervention can also be helpful and supportive for businesses.

One approach which might help to limit the effect of inflation on consumers maybe to develop “supply side” policy, boosting local production of food commodities. By expanding supply relative to demand, prices should be held down.

IGD’s Viewpoint report, Driving growth through a thriving food system, outlines strategic policy action could generate £5bn in investment, boost annual domestic production by £1.3bn by 2030, create 60,000 jobs, and strengthen the UK's food security.