Food industry warns ‘resilience isn’t a given’ as inflation falls

19 June 2024, 13:07 PM
  • The rate of inflation has fallen to its lowest level in almost three years – but food and retail sectors aren’t out of the woods yet, industry groups say
Food industry warns ‘resilience isn’t a given’ as inflation falls

Food price inflation fell in May for the 14th month in a row, official figures have shown. 

The rate of inflation of food and soft drinks dropped to 1.7%, down from 2.9% in April, helping drive down headline inflation to its lowest rate in nearly three years. Inflation has now hit the Bank of England’s target of 2% for the first time since 2021.

Inflation has been in the spotlight in the run-up to the general election on 4 July as debates around the cost-of-living crisis heat up.

“It’s encouraging to see food and non-alcoholic drink price inflation continue to fall, which is welcome respite for households and important for business recovery,” said Karen Betts, CEO of the Food and Drink Federation (FDF).

However, Karen warned that “the resilience of our sector isn’t a given”. 

“With agricultural commodity prices and energy costs rising once again, parts of the food and drink supply chain remain vulnerable and there’s little slack to cope with the impact of extreme weather events on harvests or further rises in shipping costs,” she continued.

Prices for olive oil, cocoa and sugar continue to rise

Indeed, the decrease in food price inflation wasn’t consistent across all food and drink products. 

For example, while prices fell for jams and marmalades, whole milk and butter by 6.2%, 5.5% and 4.4%, respectively, olive oil is up by a whopping 39.1%, cocoa and powdered chocolate has risen by 19.5% and sugar is up by 9.8%. 

What the news means for the cost-of-living crisis

People around the country would “breathe a sigh of relief” as the inflation rate fell, said Kris Hamer, director of insight of the British Retail Consortium (BRC). The news raised hopes that the Bank of England would cut interest rates. 

Lower inflation rates for energy prices, clothing and furniture were all welcome news for consumers too, he said.

But politicians can’t take this inflationary progress for granted, Kris warned. “Retailers are working hard to limit price increases for their customers, and the next administration must play their part in reducing cost pressures on retailers and the customers they serve,” Kris said. 

“Addressing key costs such as the business rates burden, which leads to customers paying a higher price at the till, must be a priority for whoever forms the next government.”

And the UK isn’t out of the woods yet on inflation. Food prices are still a quarter higher than they were at the beginning of 2022, and fine food retailers will still be feeling the pinch when it comes to their energy prices and certain products whose prices remain stubbornly high.

What’s more, Jake Finney, economist at PwC UK, warned that if prices continue to rise at the same month-on-month rate that they did this month, headline inflation will be back over the 2% target next month.

Food and drink could be UK ‘powerhouse’

In its first quarter State of the Industry report, the FDF said labour shortages and shipping disruptions will continue to put pressure on food prices, and geopolitical and climate events remain “significant risks”.

The group also highlighted that food and drink manufacturing is the worst performer amongst other sectors when it comes to investment, with smaller producers feeling the most impact.

For the food and drink sector to thrive, innovation is needed. In response to the latest drop in the inflation rate, Karen said decisions must be made to ensure this is possible. “It’s crucial that the next government works closely with our sector to ensure sufficient investment to guarantee the UK’s food security alongside economic growth,” Karen said. 

“With the right incentives and the right regulation, our sector – the largest manufacturing sector in the country – should be a powerhouse for science and innovation, good jobs and community prosperity.”

more like this
close stay up-to-date with our free newsletter | expert intel | tailored industry news | new-to-know trend analysis | sign up | speciality food daily briefing