Last week, the Economics team presented our latest Viewpoint webinar. Click here to view the recording. Click here to download the report
Outlined below are some answers from some of the questions that were raised during the webinar.
Q. What are the predictions for interest rates looking like?
Monetary policy is the traditional response to high inflation, through the raising of interest rates. Since 2021 the Bank of England has been gradually increasing interest rates, with the rate currently at 1.25%. It expects rates to continue to rise and reach 2.5% by mid-2023 but the extent and rate of change remain uncertain.
Raising interest rates is an effective means of dampening demand when demand is forcing prices higher. Unfortunately, the current inflationary event is primarily down to supply side shocks and the potential for interest rates to control inflation seems limited.
Q. What is contributing most to the lower availability? Is it deep sea imports, Brexit, domestic supplier performance, domestic logistics or supermarkets own operations?
Multiple factors are contributing to the challenges over availability. The labour market remains tight. Vacancies outnumber those who are unemployed, with staff shortages disrupting supply chains and constraining economic activity. Global commodity markets remain volatile. The war in Ukraine continues to disrupt supply chains.
EU Exit and other regulatory changes have led to falling trade volumes, increased administration and labour shortages in key industries (e.g.: HGV drivers and butchers) There are still issues caused by EU Exit. Talks between the UK and the EU remain Deadlocked concerning the Northern Ireland Protocol. This is impacting trade between GB and Northern Ireland.
Supply chains remain stressed as the global economy recovers from COVID-19. Lockdown measures in China amplify these concerns
Q. Do you think HFSS will lead to a drop in volume sold in the affected categories or consumer will quickly adapt?
Promotional restrictions on HFSS products are likely to cause an impact on volumes. This is the objective, although impacts will vary by category.
Here are a few details on what the restrictions are.
Retail analysis subscribers can see analysis on HFSS and the impact online here.
Please also see this article and webinar on the five things we can learn from the latest HFSS store layout trials.
Q. Do you think the changing shopper behaviour from stores to online that was accelerated by Covid is likely to be maintained as shoppers become savvier in looking for value and avoid rising fuel costs?
Our ShopperVista data is already showing shoppers shifting their shopping behaviour to cope with the cost of living crisis. This has led to increased usage of the discounters and lower usage for online grocery (to save on delivery charges) as well as convenience stores (to save on the perceived “convenience premium”).
Q. Which particular product areas do you see being impacted most by the rise in inflation?
In our Viewpoint special report – Exploring the outlook for food inflation, we stated that products that rely on wheat for feed, such as white meats will see significant price change. Chicken, with short production timescales, will see prices increase in the short-term (weeks).
Q. With Retailers - is their job to protect customers from Inflation PR or in reality are they trying to protect market share and shareholder returns?
The two objectives are not necessarily mutually-exclusive. Price is one of the key determinants of choice for both stores and products and businesses that are uncompetitive will soon leave the market. If goods and services are unaffordable to shoppers then suppliers, retailers and investors all lose.
Q. Should the government implement a food security plan?
The Government has considered food security as part of the Food Strategy white paper, released in June. A key aim of the white paper is ‘to deliver a prosperous agri-food and seafood sector that ensures a secure food supply in an unpredictable world’. This will be carried out through:
- The maintenance of current levels of domestic production through productivity gain and new farming schemes
- An additional provision of 10,000 seasonal worker visas, to ensure that agriculture has the sufficient level of labour to ensure production levels can be maintained.
This week, the Environment, Food and Rural Affairs committee has launched an inquiry into food security as a response to food price inflation, forecast to be 15% in late summer by IGD and other factors affecting the availability of food. As part of this inquiry the committee will consider whether the current level of food self-sufficiency remains appropriate.
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