Retail food inflation will remain "subdued" for the next 18 months

By Elaine Watson

- Last updated on GMT

Related tags Food price inflation Milk Consumer price index

After a small rebound earlier this year, retail food inflation will "fall back again and remain subdued for the next 18 months - unless some major unforeseen shock to global supply occurs", English Food and Farming Partnerships (EFFP) has predicted.

EFFP, which developed its retail food price forecast in association with Cranfield School of Management, said "weaker general inflation in the economy"​ meant retail food inflation would remain low.

Kantar Worldpanel, which estimated that grocery price inflation dropped to 1.4% in the 12 weeks to April 18, 2010 (based on purchasing data from its panel of UK shoppers), said this meant 2010 could prove to be a very tough year for food manufacturers.

Communications director Ed Garner said: "This low-inflation environment will be reflected in lower average growth for the grocery market.This contrasts with the increase in consumer price inflation published last week, which reflected increases in fuel prices and VAT on non-food."

However, other observers are predicting modest rises in food price inflation later this year as manufacturers try to pass higher commodity costs onto customers.

Shore Capital analyst Clive Black predicts food price inflation could rise to 3% later in the year.

Commenting on Unilever's first-quarter results, in which chief executive Paul Polman warned of increasing commodity costs, he added: "We note management's comments on future commodity costs, which are expected to rise in the second half, so forewarning of future inflation."

Uniq and R&R Ice Cream

Food manufacturers contacted by this publication also said they were facing higher input costs in several areas, although passing these onto the supermarkets was a struggle given the fiercely competitive and promotionally-driven nature of the UK food retail market.

James Lambert, chief executive at R&R Ice Cream, said:"I believe that we will see food inflation rising by anything between 3-8% over the next year and the only thing that can deal with this is a strong pound. This is the first challenge the in-coming government will have to deal with."

He added: “In our sector, some packaging costs – particularly cardboard – have risen by up to 20% and there have also been significant increases in commodity prices.Sugar, as well as both vegetable and dairy fats, have also gone up.The only item that has remained stable so far is milk.”

Uniq chief executive Geoff Eaton told that things were "more stable than they had been for some time" ​on the commodity pricing front. However, there were "pockets of things that have increased",​ he said.

Uniq's procurement team had spent a lot of time trying to improve the efficiency of its purchasing function this year after being "caught out"​ by volatility in the market the previous year, he claimed: "With cream, milk and fruit a significant part of our cost base, it is vital that we optimise the way we buy our ingredients.

"For example, by changing from a fixed-price milk contract and locking in price falls early last year, we were able to control costs more effectively.

"Rapidly rising cream prices increased costs significantly in quarter four, but, by being flexible and smart in the way we sourced and used milk components, we were able to mitigate some of the increased cost. Previously, we had been caught out a bit by the volatility, but we are much more flexible now."

Click here to access EFFP's detailed food retail inflation forecast

Related topics Chilled foods Frozen

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