Food inflation is here to stay

The former CEO of supermarket chain Sainsbury’s has warned of double-digit food inflation in the UK that will last for a year or more. 

“The impacts of energy price rises, and the very significant impact on availability of core commodities such as oil and wheat, and so on … they haven’t found their way through the food price system yet,” Justin King told LBC Radio (as reported by Retail Week). “They are working their way through to prices and will be very significant.”

Why it matters

When the prices of essentials are rising at the same time as incomes are shrinking in real terms, consumers inevitably have less to spend on luxuries, however defined. Last week, for example, it was reported that Britons cancelled over 1 million music subscriptions in the first quarter as the worsening cost-of-living crisis forced them to make savings. We can expect more such responses in the coming months. 

Context

• Food inflation rose to 4.3% in May from 3.5% in April and is one of the main drivers of the general consumer prices index (CPI) measure which stood at 9% in April.
• An IGD report last week suggested grocery inflation could hit 15% in the summer.
• Tesco has flagged “early signs” of changing shopper behaviour, including trading down and smaller basket sizes.

Key quote

“We are already seeing households skipping meals, a clear indicator of food stress” – James Walton, chief economist at IGD. 

Sourced from Retail Week, Reuters, Marketing Week, ONS