UK Food Price Inflation Shows Signs of Easing in Two Surveys

UK food price inflation may have passed its peak, with two separate surveys showing an improvement.

(Bloomberg) — UK food price inflation may have passed its peak, with two separate surveys showing an improvement.

The market research firm Kantar said grocery price increases eased to 16.5% in the four weeks through June 11, down from 17.2% the previous month and the lowest reading this year. Lloyds Bank Plc said production costs for UK food and drink makers fell for the first time last month since 2016.

The figures mark tentative signs that upward pressure in prices may be starting to ease. Bank of England Governor Andrew Bailey has warned that inflation it taking longer than expected to ease after reaching the strongest level in four decades last year.

“The ongoing squeeze is clearly weighing on the nation’s mind,” said Fraser McKevitt, head of retail and consumer insight at Kantar. “Of the top five financial worries that consumers have, rising grocery prices is the only one that they are more concerned about now than at the start of this year.”

Upward pressure on prices is one of the factors that’s prompted investors to add to bets that the BOE will raise interest rates through the summer. That would intensify a cost-of-living squeeze on consumers, who are shouldering both higher prices in shops and soaringadd to bets borrowing costs on mortgages.

Prime Minister Rishi Sunak’s government has pressed British supermarkets to curb prices as grocery inflation proves stickier than in other countries. Retailers have pushed back against accusations that they’re profiting from higher prices, noting that supply chain problems following Covid-19 lockdowns drove up the cost of many goods.

Kantar said shoppers are visiting discount supermarkets, buying fewer items and sticking to supermarket own-brand goods in a bid to save money. People are also preparing simpler dishes with fewer ingredients.

The year-on-year impact of grocery inflation on typical summer purchases is hitting hard too with ice cream prices up 20%, mineral water up 17%, sausages up 16% and burgers up 13%.

Discounter Aldi was the fastest-growing retailer for the 12 weeks to June 11, with sales rising nearly 25%, pushing its market share up to a record 10.2%. Lidl was close behind, with sales rising more than 23%. 

Last week, Tesco Plc CEO Ken Murphy said there are signs that grocery inflation is starting to ease after the grocer recently cut prices on bread, pasta and broccoli. Britain’s biggest supermarket also expanded its price match with Aldi and dismissed the idea of profiteering. 

Still, “it’s unlikely that prices will return to where they were,” he warned.

A separate report from Lloyds showed an index tracking food and drink makers fell to 49.4 in May, the first time in more than seven years that it’s been below the crucial no-change level of 50. The decline was driven by falling commodity prices and energy costs.

Lloyds noted, however, that the prices consumers pay typically take weeks or months to follow a drop costs for manufacturers, which will try to recoup some of the margin they lost last year when prices shot up.

“It will still take some time before we see the benefit in terms of shelf prices,” said Annabel Finlay, managing director of food, drink and leisure at Lloyds Bank Commercial Banking. “This is, in part, due to the long-term nature of contracts between the manufacturers and retailers, as well as the broader segments of the production chain.”

Finlay added that any further disruption to supply chains, such as that caused by the Covid pandemic and the invasion of Ukraine, could cause input costs to rise again. She advised manufacturers to review their supply chains and “optimize” working capital to build resilience.

Parliament’s Environment, Food and Rural Affairs Committee last month opened an inquiry into the fairness of pricing in the food supply chain — a phenomena dubbed “greedflation” in the press. The UK Competition and Markets Authority is also examining whether weak competition in the supermarket sector is contributing to higher prices.

Read more:

  • UK Headed for Recession if Rates Reach 6%, Economist Says
  • Britain’s Economic Turmoil Is Hitting Women the Hardest
  • Bets for Soaring UK Interest Rates May Unravel Over 30 Hours
  • UK Consumers Turn Less Gloomy About Inflation, BOE Says

 

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