UK Food Inflation Eases in May But Remains High, Says Retailers Group

Shoppers in a supermarket in the UK on Oct. 15, 2021. (Aaron Chown/PA Media)

Food inflation in the UK has fallen for the first time in almost two years, with experts suggesting that lower energy and commodity costs are driving food prices down.

A report by the British Retail Consortium (BRC) and Nielsen, published on Tuesday, showed a deceleration from 15.7 percent to 15.4 percent in food inflation in the year to May.

This is the same as the three-month average rate of 15.4 percent and is the second highest inflation rate in the food category on record.

In the fresh food category, the research showed an inflation drop from 17.8 percent in April to 17.2 percent in May. May figures are below the three-month average rate of 17.3 percent but also remain the second highest inflation rate in the fresh food category.

The BRC, a trade organisation for UK retailers, also reported an inflation increase in the ambient food category from 12.9 percent in April to 13.1 percent in May. Ambient foods are shelf-stable items that can be stored at room temperature, such as canned goods, rice, pasta, and flour.

Mike Watkins, head of retailer and business insight at NielsenIQ, said that while the recent price cuts in fresh foods may be a sign “that inflation has now peaked,” ambient food inflation may take a little while longer to slow.

The UK inflation rate dropped in April for the first time in eight months. Head of BRC Helen Dickinson attributed the slowdown in inflation to lower energy and commodity costs.

“While overall shop price inflation rose slightly in May, households will welcome food inflation beginning to fall. The slowdown in inflation was largely driven by lower energy and commodity costs starting to filter through to lower prices of some staples including butter, milk, fruit, and fish. Conversely, the price of chocolate and coffee rose off the back of the ongoing high global costs for these commodities,” Dickinson said.

The new report showed a slight increase from 8.8 to 9 percent in the shop price annual inflation, which measures changes in the price of 500 of the most commonly bought items.

Non-food inflation accelerated to above the three-month average rate of 5.7 percent, reaching 5.8 percent in May, an increase from 5.5 percent in April.

“While non-food inflation rose, consumers are benefitting from heavy discounts in footwear as well as books and home entertainment,” Dickinson said.

To help mitigate the impact of inflation, consumers also turn to seasonal promotions on the high street and take advantage of price reductions offered by supermarket loyalty schemes, Dickinson added.

It follows similar commentary by Barclays CEO CS Venkatakrishnan, who recently said that in the light of high inflation, UK consumers are “economising” by substituting premium brands for generic ones and spending more on essentials and less on non-essentials.

Piling Pressures

Dickinson warned in the report against government pressures on retailers, which could drive up prices on goods.

“Fierce competition between supermarkets has helped keep British food among the cheapest of the large European economies. While there is reason to believe that food inflation might be peaking, it is vital that government does not hamper this early progress by piling more costs onto retailers and forcing up the cost of goods even further,” she said.

The biggest risk comes from policies such as the incoming border checks, Dickinson added.

The government’s border controls model on imported goods from countries inside and outside the EU is to be implemented by the end of the year.

The Border Target Operating Model will introduce new import controls on various produce categories, including dairy, eggs, fish, and meat. It will also shift from a cumbersome paperwork approach to a “digital trade system,” according to the Cabinet Office.

In preparation for the border checks in 2023, the BRC has called on British businesses to keep up with developments and ensure their European suppliers are prepared for future certification and checks.

Another government policy piling more costs onto retail businesses is reforms to packaging recycling fees, said Dickinson.

The reforms will be implemented in 2024, with the introduction of Extended Producer Responsibility for Packaging.

Firms that supply household packaging will foot the bill for packaging collection and disposal costs.

This will induce higher costs for supermarkets and other businesses but, according to the government, will improve the recyclability of packaging and ensure “less waste ends up in the natural environment.”