Food inflation has fallen again, but rising costs suggest further pressure ahead.
Food inflation weakening
UK food shoppers received positive news this morning, with food and drink inflation falling from 2.2% in May to 1.7% in June. Prices are still rising, of course, but much more slowly than before.
Background inflation also softened, falling from 2.8% year-on-year in May to 2.6% in June, as measured by the CPI method.
With many households still under financial pressure, this is helpful and welcome. However, strategic change is adding cost to the food supply chain. Conflict has driven global energy prices up, whilst government regulation continues to increase business cost in several areas (e.g.: packaging, taxes).
Many commentators, including IGD, have forecast higher food and drink inflation in 2026, however, inflation has remained below expectations so far.
IGD has forecast that food inflation of 3.3 – 4.3% in 2026 but inflation is currently running well below that range.
Why is inflation lower than expected?
The primary reason seems to be that commodity food markets began 2026 in a favourable state, with grains in ample supply and prices under control. This may be offsetting higher costs elsewhere.
Another possible reason is that cost change at the top of the supply chain is taking longer to pass on to shoppers than previously expected, perhaps because budgets are too tight to swallow higher bills.
Looking ahead, the balance of risks still points towards higher food inflation. There are several reasons to believe this.
First, Defra data shows that farm input costs rose steadily in the first months of 2026, especially for energy and fertilisers. The full impact of higher fertiliser prices will likely start to appear in farm accounts from Autumn onwards, as farmers make orders for next Spring.
Second, the extreme weather seen across Europe through Summer 2026 is sure to have some impact on food prices. Early reports from UK farmers suggest that the effect on combinable crops has been highly variable, with some areas seeing lower yields and quality, whilst other seem less affected.
Third, geopolitical instability is still firmly in place and may be spreading into the Red Sea area, with Houthi militias once again threatening shipping. That means that three key global supply routes for fuel are extremely risky – the Red Sea, the Black Sea and the Persian Gulf.
Energy prices are rising again, and this threatens renewed inflation, in many countries and across many product types.
Finally, Sterling value remains highly volatile. Any weakening of Sterling versus other currencies would increase UK exposure to global forces – and there are many forces which might deliver this. Given political change in the UK, investor worries about government effectiveness would be a strong candidate.
What next?
There is currently little evidence to suggest overall food prices will fall back to previous levels. That would be a historically rare event, in any case.
On balance, IGD expects food inflation to pick up again, although later than previously anticipated. Current inflation rates may therefore understate the pressures building within the food supply chain. IGD’s next inflation forecast will be issued in September 2026.