EFFP: Retail food price inflation set to peak at 6-7%

By Elaine Watson

- Last updated on GMT

Related tags: Food price inflation, Inflation

Retail buyers are trying to keep a lid on inflation
Retail buyers are trying to keep a lid on inflation
Downward pressure on the economy is likely to keep a lid on UK retail food price inflation, which will peak in the first few months of this year at around 6-7%, and then decline slowly, according to European Food and Farming Partnerships (EFFP).

At first glance this forecast might appear overly conservative, given recent hikes in energy prices and the fact that the Food and Agriculture Organisation’s (FAO’s) food price index is higher than it was in 2008, the last time commodity prices hit the roof, acknowledged the agri-food consultancy.

However, cereal prices were approaching their peak, rises in VAT did not affect food (for the most part) and the percentage increases in oil and grain were not as high as they were in 2008, noted EFFP senior partner Sion Roberts.

“Although we are expecting grain prices to remain high over the coming year, both the direct and indirect effect via meat prices of the recent rise in cereal prices will fall out of the inflation index in the coming months.

“Another point relates to the inflationary effects of sterling’s fall of more than 20% in 2008 compared with relative stability over the past year.”

Tense negotiations with retailers

As delegates at Food Manufacture’s business leaders’ round table debate highlighted last month, retail buyers ​are also proving stubbornly resistant​ to attempts from suppliers to raise prices.

That said, EFFP expects raw material prices to rise in real terms over the next couple of decades, leading to the need for “radically new business models in the food sector”,​ said Roberts.

According to Kantar Worldpanel data, grocery inflation has consistently hovered around the 3% mark in recent months, with retailers masking the effects of rising food prices with heavy promotional activity.

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