Retailers anticipate peaked food prices, but coffee and cocoa drive up costs

The overall rate of inflation at grocers reached 9% in the UK in May, flags the British Retail Conso…

The overall rate of inflation at grocers reached 9% in the UK in May, flags the British Retail Consortium (BRC). Food inflation in Britain is showing signs of easing, but official data shows the cost of commodities such as coffee and cocoa jumped while there has been a slight decline in the price of fresh foods.

Food inflation decelerated to 15.4% in May, down from 15.7% in April. This is the same as the three-month average rate of 15.4% and is the second-highest inflation rate in the food category on record.

This closely follows UK prime minister Rishi Sunak reportedly outlining a plan to encourage supermarkets to cap prices of everyday staples such as milk and bread. However, retailers said the voluntary agreement would not make a difference to inflation.

BRC chief executive, Helen Dickinson, states: “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.”

Government urged not to make it worse
Dickinson cites planned post-Brexit checks at the UK’s ports and borders, which are expected to lead to long delays, as potential risks to heightening the pressure in the retail space.

“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 urges.

“The biggest risk comes from policies such as the incoming border checks and reforms to packaging recycling fees.”

A closer look at the BRC numbers shows fresh food inflation decelerated in May to 17.2%, down from 17.8% in April. This is below the three-month average rate of 17.3% and is the second-highest inflation rate in the fresh food category on record.

Fastest rates on record
In contrast, ambient food inflation accelerated to 13.1% in May, up from 12.9% in April. This is above the average rate of 12.8% and is the fastest rate of increase in the ambient food category on record.

Shop Price annual inflation accelerated to 9.0% in May, up slightly from 8.8% in April. This is above the three-month average rate of 8.9%. This brings shop price growth to a fresh high.

“To help mitigate the impact of inflation, shoppers are saving money by looking for seasonal promotions on the high street and taking advantage of the price reductions offered by supermarket loyalty schemes,” adds Mike Watkins, head of retail and business insights at NielsenIQ, says.

“Food retailing, in particular, is competitive, so hopefully, the recent price cuts in fresh foods is a sign that inflation has now peaked, albeit ambient inflation may take a little while longer to slow.”