Food price inflation still rising

What’s happening?

All-items inflation continues to creep upwards, moving from 3.4% year-on-year in May to 3.6% in June, as measured by the CPI method.

Price change for food and non-alcoholic drink at retail accelerated from 4.4% in May to 4.5% in June. Inflation in this market has been creeping up since September 2024, but the topline figure conceals differences between categories. Strong price increases were seen in bread, meat, dairy and produce, but inflation in other categories slowed noticeably.

Inflation in alcohol also stepped up in June, hitting 5.0%, probably due to duty increases and the ending of the wine easement.

(The easement, which ended in February 2025, was a special temporary measure intended to smooth-out the effect of transition to a new duty system, especially for stronger wines).

For food and drink taken Away from Home, inflation remained stable at 3.9%. So far, labour cost increases because of the Budget do not seem to have caused a step-up in inflation in this part of the food market, probably due to efforts of business operators.

However, IGD believes that these cost increases cannot be resisted indefinitely and inflation for Away From Home will likely pick-up later in the year. For more details about Away From Home, access our new Away From Home insight service here.

What is driving inflation?

Inflation in food and drink is being driven by a combination of cost-side forces. The bulk of price change is coming from underlying inflation – rising business costs as a result of supply / demand fluctuation.

In addition, a measure of inflation is being driven by business cost change from government activities. Changes to the National Living Wage and National Insurance have been especially impactful for food businesses.

Inflation as a result of demand is not thought to be a major driver – in fact, lack of demand is still encouraging businesses to hold back price increases where possible.

What might happen next?

The strategic position for food businesses remains extremely uncertain. Extreme weather in early 2025 is likely to have some impact and geo-political effects are almost impossible to call – both will feed in to underlying inflation.

Some items are certain, however. Extended Producer Responsibility (EPR) will introduce new business costs from October 2025 and this scheme will continue to develop in subsequent years. For some items, the Deposit Return Scheme (DRS) will come in from 2027.

It is also reasonable to expect further increases in the National Living Wage, to keep pace with inflation. With the government anxious to increases revenue, we may see changes to excise duty.

What does it mean?

Inflation tends to damp-down consumer confidence and volume demand, even in non-discretionary markets like food and drink.

Ongoing inflation is suppressing business recovery from previous shocks and this is reflected in IGD’s recent forecasts for both retail and Away from Home, which are very cautious.

Where will food inflation go?

Get our new food inflation forecasts first when the new Viewpoint report: UK food inflation forecasts 2025–2027, is published on Monday 21 July. Sign up now to stay ahead.