Food price inflation is believed to have peaked at 19.1%, year on year, in the first quarter of 2023 – broadly in line with IGD’s previous forecasts.
Inflation is now expected to fall slowly as 2023 progresses, ending the year at 8% to 10% and turning slightly negative in late 2024. Average inflation over 2023 will be 14% to 16%.
This offers a measure of good news for hard-pressed shoppers, but the price of a typical weekly grocery shop is not expected to fall back to previous levels within the forecasted period.
The ‘unwinding’ of food price inflation is expected to run behind ‘all items’ inflation, for several reasons, including:
- previous cost increases have not yet been passed on down the supply chain, while margin pressure remains intense;
- prices for many basic food commodities remain elevated for now;
- some costs are likely to be ‘sticky’, especially labour; and
- costs are rising for regulatory compliance, such as border management and environmental protection.
This means that food and drink will likely make up a larger proportion of inflation pressure as inflation declines. Currently, food makes up about a quarter of CPI inflation pressure, but, by the end of the year, it could reduce to half of that figure.
If this analysis is correct, this would represent a major reputational hazard for the industry, as IGD has noted before.
In fact, this issue is already starting to emerge, with media coverage of food prices becoming increasingly challenging.
UK food businesses must continue to focus on managing costs and delivering the benefit of savings to shoppers – most shoppers appreciate affordable food, and some need it.
IGD will host a webinar on 13 July for its next Viewpoint update. To register for the webinar, visit www.igd.com/events/webinars/viewpoint-webinar-issue-10.
IGD’s latest Viewpoint Special report, exploring what’s next for food inflation, is available to download here.