Food inflation in UK stores jumped to a record high last month with retailers warning of another year of elevated prices.
(Bloomberg) — Food inflation in UK stores jumped to a record high last month with retailers warning of another year of elevated prices.
The British Retail Consortium said Wednesday that food inflation “accelerated strongly” to 13.3% in December, from 12.4% the previous month, an all-time high for the index which started in 2005.
Shoppers spent over £12 billion ($14 billion) as a result of higher prices, according to separate numbers published by Kantar — the first time the threshold has been breached. The data company said sales by volume fell 1% compared with December 2021 but inflation drove up the value of revenues.
“2023 will be another difficult year for consumers and businesses as inflation shows no immediate signs of waning,” said BRC Chief Executive Officer Helen Dickinson. She cited ongoing pressures from the war in Ukraine pushing up the cost of animal feed, fertilizer and energy.
The cost of fresh food rose 15% from a year earlier, also a record high for the BRC, up from 14.3% in November.
Still, while the BRC said food inflation had accelerated, Kantar’s data found it had slightly eased — to 14.4% in December, down from 14.6% in November and a peak of 14.7% in October.
Furthermore, the BRC said that overall inflation in UK stores dipped in December, marking the first decline in over a year. It said shop price inflation decelerated to 7.3%, down slightly from November’s record high of 7.4%.
The leveling off in prices overall was due to retailers heavily discounting stock in the run-up to Christmas to shift excess inventory. Many stores ordered products earlier in the year when supply-chain problems still meant long waiting times and before rising inflation began to hurt spending.
The BRC was quick to warn that the dip in prices doesn’t signal an end to spiraling inflation and that retailers may have to put their prices up even more from April once the government’s support on energy bills expires.
Discounting
UK retailers started discounting earlier than usual last year to entice shoppers to spread out their Christmas spending. Department store John Lewis Partnership Plc and drugstore chain Boots both began offering seasonal deals beginning in early November.
Larger-than-normal discounts may have squeezed retailers’ margins and trading updates this month will reveal by how much. Retail bellwether Next Plc is set to kick off the post-Christmas earnings season on Thursday.
The first months of the year are likely to be bleak as shoppers face credit card bills for their December spend and as energy bills come due. Consumers will prioritize spending on groceries, which are rising in price, while non-essentials like fashion and homewares are likely to suffer, according to Mike Watkins, head of retailer and business insight at NielsenIQ, which produces the data for the BRC.
“The increase in food inflation is going to put further pressure on household budgets and it’s unlikely that there will be any improvement in the consumer mindset around personal finances in the near term,” he said.
(Adds extra data from Kantar.)
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