Food Price Inflation Could Peak At Over 20%

Namnews, 23rd June 2022

Global bank Citi is forecasting that food price inflation in the UK could accelerate even higher than current expectations.

Official figures released yesterday showed that the rate of inflation rose to a fresh 40-year high of 9.1% in May. This was driven by rising food costs – especially for bread and meat – taking over from surging energy prices as the key factor in the increase in CPI.

Food and non-alcoholic drinks prices paid by consumers in May were 8.7% higher than a year ago – their biggest increase since March 2009 – and manufacturers’ ingredient costs are rising even more rapidly.

The prices manufacturers paid for domestic food materials was up 10.3%, while imported food costs were 20.5% higher, the largest rise since December 2008.

In a note to clients, Citi economist Benjamin Nabarro said: “Food inflation overshot our forecasts. We now expect price growth here to peak at a little over 20% in Q1 2023, with producer price inflation here continuing to accelerate.”

Last week, IGD predicted that food price inflation would peak at 15% in the coming months. It also warned that the acceleration in food inflation is likely to last until mid-2023, much longer than official forecasts, due to several factors, including the impact of the war in Ukraine, pre-existing supply chain challenges, and the limited effectiveness of monetary and fiscal policy.

Meanwhile, industry data released by Kantar this week showed that grocery prices had risen 8.3% in June, up 1.3 percentage points on May, to reach their highest level since April 2009.

Several supermarkets have reported that shoppers are already trading down to cheaper ranges and switching to discounters to save money.

Citi said the visibility of rising food prices was also likely to put greater upward pressure on wage demands than other types of inflation – a concern for the Bank of England, which fears big pay rises might entrench inflation for the long term.