Food inflation is becoming more volatile as businesses face a rapidly changing mix of economic, policy and climate pressures.
Food inflation has entered a more volatile period
Analysis of UK inflation data shows that food and drink price inflation has been more volatile since 2020 than it was during any of the previous four decades. Only the 1970s, which were also marked by energy shocks and geopolitical conflict, experienced greater volatility.
Price volatility can be measured by statistically. Standard deviation shows how far data points within a set vary from the mean over a specified period. A higher standard deviation indicates greater variation, and, in the case of inflation data, greater volatility.
There is a large body of historical food and inflation data, allowing us to analyse standard deviation back to the 1950s.
Period | Standard deviation, monthly food and drink CPI | Notes |
1950-59 | 5.3 |
|
1960-69 | 2.3 |
|
1970-79 | 6.8 | Energy shocks x2 |
1980-89 | 3.3 |
|
1990-99 | 2.6 | Energy shock |
2000-09 | 3.3 |
|
2010-19 | 2.7 |
|
2020-present | 5.8 | Brexit, Covid, energy shocks x2 7 year sample period |
Source: ONS and IGD analysis, September 2026
We can see clearly and objectively that food inflation has been more volatile in the post-Covid period (2020-present) than it was over the previous 40 years. This reflects a broader shift identified in IGD's recent resilience research. Volatility is increasingly becoming a structural feature of the operating environment rather than a temporary disruption, requiring businesses to adapt how they plan, invest and manage risk.
In fact, only the 1970s showed more volatility in food and drink inflation. The 1970s were affected by energy price shocks resulting from conflicts in the Middle East, much like the 2020s.
For food and drink businesses, the challenge is not only the rate of inflation. It is the frequency with which the principal drivers of inflation change, overlap and interact.
The drivers of food inflation are changing
The forces that shape global commodity prices including currency movements, disease, input costs, weather - are the same as always. However, the way in which these forces interact is becoming more complex, while the dominant source of inflation can change quickly. There are several reasons for this:
Demand - Global demand for food and drink is rising, as a result of population growth and increasing average prosperity
Extreme weather - Weather effects are becoming more unpredictable and more severe due to climate change, with the current powerful El Nino event demonstrating the potential consequences
Geopolitics - International politics in the 21st Century has been characterised by polarisation and the pursuit of national interests, rather than consensus and rules-based systems
These global factors are further modified by local factors. In the UK, these include:
Brexit - Brexit was followed promptly by a trade deal with the EU covering food and drink. However, Brexit continues to create practical and psychological barriers
Policy - The UK government continues to regulate markets, adding to the cost of doing business through measures including business rates, National Insurance contributions and packaging policy
Support for farming - For food and drink businesses, farming policy, especially subsidy policy, can be a powerful influence on local food prices and availability
The convergence of several of these forces over a relatively short time creates additional uncertainty. However, there are also factors that can moderate inflation and hold prices back:
Competition – Price competition in UK food is intense, as noted by the CMA in multiple investigations. Margins are typically low, as shown by IGD research.
Consolidation – The food supply chain has seen consolidations in recent years, which may increase efficiency, including Bakkavor and Greencore and the proposed McCormick and Unilever deal.
From energy shocks to climate disruption
Businesses have not been dealing with one continuous source of food inflation. Instead, the dominant drivers of food inflation have shifted repeatedly in recent years. The mix of drivers has changed from energy prices and geopolitical disruption, to government policy and labour costs, and increasingly to weather and climate-related disruption.
In 2022 and 2023, attention was focused primarily on energy prices, geopolitical disruption and the impact of these pressures across supply chains. During 2024 and 2025, government policy, labour costs and other domestic cost pressures became increasingly prominent. In 2026, weather and climate-related disruption have become more significant to the outlook.
The relative importance of these factors will continue to change. Rather than acting in isolation, inflation drivers increasingly interact and overlap, creating compounding pressures that can amplify their impact and delay the pass-through to consumer prices.
Timeline: the evolving drivers of food inflation
Period | Prominent inflation drivers |
2022-23 | Energy prices, geopolitics and supply-chain disruption |
2024-25 | Government policy, labour and domestic operating costs |
2026 onwards | Weather, El Niño and climate-related disruption, with climate change increasingly acting as a risk amplifier, intensifying other inflation pressures alongside continued geopolitical uncertainty
|
A more complex forecasting environment
The increased volatility does not reduce the value of forecasting. Instead, it increases the need for organisations to assess a wider range of scenarios and emerging risks. In a world where inflation drivers can shift rapidly from energy markets to climate events or policy change, forward-looking insight becomes an increasingly important tool for preparedness and decision-making.
In September 2026, bankers JP Morgan indicated it was no longer forecasting oil prices because of uncertainty around conflict in the Middle East. If one of the world's largest financial institutions is finding energy markets difficult to call, it highlights the challenge facing businesses trying to anticipate future inflation pressures.
Food and drink businesses may be similarly challenged. Energy is a key input, and businesses will usually try to hedge their exposure by buying in advance. But in a volatile and unpredictable market, it is difficult to do this with much confidence.
For food inflation, the challenge is compounded because energy is only one of several interacting variables. Currency movements, agricultural production, weather, global demand, government policy and labour costs can all affect the outlook, but their impact and timing will vary.
Forward-looking insight therefore needs to identify not only the most visible current pressure, but also the risks that could become the next major driver of inflation. Understanding organisational capability and preparedness is equally important, helping businesses assess their exposure, adapt more quickly and respond effectively as conditions change. These themes are explored further in IGD's resilience report, Thriving in a Volatile World, which examines how businesses can build the capabilities needed to adapt, compete and grow in an increasingly uncertain environment.
What the latest IGD forecast tells us
IGD has been forecasting food price inflation for some time, but the latest forecast, issued in September 2026, has been especially challenging. It seeks g to account for the arrival of a powerful El Niño event, combined with disrupted energy markets and other distorting factors.
Estimating the effect of El Niño is difficult, with historic examples offering limited guidance. However, the strength of this El Niño suggests that it could have a powerful impact on food markets globally. The UK will not escape its effects. As the event develops, understanding its implications for food production, supply chains and inflation will become increasingly important for businesses seeking to strengthen preparedness and resilience. IGD will explore these themes further in forthcoming research on El Niño and food-system preparedness.
El Niño has moved from being a potential risk to a developing reality, with implications for crop yields, quality and availability. Its effects could continue into next year, requiring forecasters and businesses to consider the consequences of extreme weather for planting and harvest in 2027 as well as in 2026.
Although inflation 2026 has been lower than expected, the forces at work suggest that shoppers may face higher food and drink prices at some point. Inflationary pressure resulting form climatic and geopolitical change have likely been delayed rather than avoided.
IGD’s latest food and drink inflation forecasts are:
2026: 2.9 to 3.9%
2027: 5.6 to 6.6%
2028: 5.3 to 6.3%
The forecast points to a material strengthening of inflation during 2027, with inflation expected to peak around spring 2027. The higher outlook for 2027 and 2028 reinforces the importance of looking beyond the latest inflation reading and considering pressures that are still working their way through food supply chains.
Preparing for a more volatile inflation environment
In 2027, food and drink inflation is expected to be driven primarily by the impact of El Niño and unusual energy market activity resulting from conflict.
These are powerful, unpredictable drivers but hopefully, they will be of limited duration. At some point, their effects will drop out of the market. The same is likely to apply to the impact of policy change by the UK government.
When this happens, inflation will once again be governed primarily by underlying forces, the interplay of supply and demand in an open market.
However, the experience of recent years suggests that businesses cannot assume that the end of one shock will bring a sustained return to stability. A different inflation driver may already be emerging.
Businesses should therefore prepare for volatility in four ways:
1. Build resilience alongside efficiency
The best way to manage inflation for shoppers will be, first, to build resilience against shocks and longer-term trends and, second, to develop production capacity, especially within the UK.
This means considering where efficiency has created exposure to a single supplier, market, production area or source of energy and assessing where greater optionality could protect continuity of supply. Greater supply-chain visibility can also help identify critical dependencies, single points of failure and overreliance on key inputs.
Resilience is a complex question, explored by IGD in its latest report Thriving In A Volatile World. It is also one of the key subjects of IGD’s October event Future of The UK Food System.
2. Improve visibility of emerging risks
Businesses need greater visibility of critical dependencies, whether that is weather-sensitive commodities, energy markets, labour availability or concentrated sources of supply. Understanding vulnerabilities earlier provides more time to test scenarios and prepare responses. It also helps businesses assess preparedness and prioritise adaptation where resources and investment may be constrained.
3. Improve adaptability through scenario planning
Businesses should regularly test how different combinations of risks could affect operations, recognising that climate, geopolitical and policy shocks increasingly overlap and amplify one another. Scenario planning across a range of plausible future outcomes cannot remove uncertainty, but it can improve preparedness and decision making.
4. Strengthen food-system resilience
Production capacity is potentially expandable, but UK businesses will need to be selective. It is difficult to justify growing at home what can be supplied more cheaply from abroad.
However, there are clear opportunities, especially in poultry and horticulture, as described in Driving Growth Through A Thriving Food System.
Increasing domestic capacity in areas where the UK has a credible opportunity could reduce exposure to selected external shocks. However, resilience will also depend on strong trading relationships and diverse international supply chains. It should not be interpreted simply as producing more of everything domestically.
Forward-looking insight becomes more valuable
The central lesson is not that food inflation can no longer be forecast. Rather, the environment in which forecasts are produced is becoming more volatile, with the leading drivers of inflation changing more frequently and increasingly originating from global events outside businesses' direct control. As businesses face a succession of inflation shocks rather than a single long-term driver, the organisations best placed to succeed will be those that combine forward-looking insight with investment in resilience. Better visibility of supply chains, stronger preparedness, earlier adaptation and more effective scenario planning can help businesses respond more quickly to disruption and compete more effectively in an increasingly volatile world.