Food price inflation fell, but it’s not all good news

In June, food price inflation fell to its lowest annual rate since October 2021, according to the Office for National Statistics’ latest consumer price index. While the headline inflation figure remained at 2%, food inflation fell to 1.5%, down 0.2 percentage points from the previous month. Just a year ago, the figure stood at a stunning 17.4%.

Kris Hamer, director of insight of the British Retail Consortium (BRC), said households would benefit from falling inflation rates in retail, with prices of not only food but also clothing and footwear dropping compared to last month.

What caused food price inflation to fall?

“Falling energy prices and a stronger pound combined with fierce competition between retailers are helping to bring down prices for many goods, including essential items like pasta and margarine,” Kris said.

A drop in the cost of meat and fruit and a slower rise in bread and cereal prices contributed to the decline in food price inflation.

The products making the largest downward contribution to the annual rate of inflation were packs of individual cakes and crumpets, the ONS said, while the largest upward contributions came from sponge cake, sugarless breakfast cereal, tinned tuna, kettle chips and orange juice.

June also saw the fastest monthly rise in supermarket shopper numbers so far this year, data from Kantar showed. The market researcher said Brits made 2% more trips to the shops in the four weeks to 7 July compared to the previous year, and sales of beer, crisps and snacks benefitted from football fans watching the 2024 European Championships.

Shoppers were happy to swap to higher-priced products as well, with sales of branded products rising 3.6%, outpacing the growth of own-brand products, which rose 2.7%. 

Will food inflation drop further this year?

“We’re pleased to see food and drink price inflation continuing to fall,” said Karen Betts, CEO of the Food and Drink Federation (FDF). “This is key to easing the cost-of-living crisis for households across the country and crucial for business recovery.”

Stabilising costs will help to restore confidence in the sector and “stimulate the critical investment we need to see in food and drink, the largest manufacturing industry in the UK,” Karen said. “Our industry is at the heart of the everyday economy and the prosperity of our communities, and central to job opportunities and skills development. Investment is key to safeguarding food security and the resilience of our food and drink sector.”

Investment in food and drink manufacturing fell 30% between 2019 and 2023, according to the FDF, and one of the group’s key priorities is to work with the new government to address this by ensuring the right incentives are in place and that regulations enable business growth and innovation.

The British Chambers of Commerce’s (BCC) tracker for business concern over inflation showed it remains the top worry for British business owners, but this has been waning since an all-time high in 2022. “Risks remain, with global conflicts and trade tensions major sources of uncertainty and services inflation proving stubborn,” said the BCC’s head of research David Bharier.

He said a rate cut by the Bank of England would ease the cost of borrowing and help spur investment in smaller businesses. “This will be essential to reverse the trend of anaemic investment facing many SMEs,” David continued. “It’s vital that similar firms in the UK have access to the capital needed to make productivity gains, especially as we enter into the AI revolution.” 

And while the BRC’s Kris said the retail sector “should celebrate the end of high inflation, which has dogged the UK for two years,” he warned that many of the factors that caused the spike in prices continue to “lurk in the background”.

“Energy prices have fallen from peak, but the UK’s reliance on imported energy remains a vulnerability. Similarly, the impact of climate change on harvests at home and abroad, as well as rising geopolitical tensions, could increase commodity prices and translate into higher inflation in the future.”