Talk of soaring food prices is over inflated
Grocery inflation is expected to double by the end of the year from its current 2% level to 4%. This prediction is based on known increases as well as figures annualising out of the calculation. Inflation has widely been reported with news of ‘food prices set to soar’, as adverse weather and poor global wheat harvests have led to substantial hikes in the costs of grain, palm oil, cocoa and animal feeds.
However the latest data and industry insight from Kantar Worldpanel indicates that consumer fears of a significant increase in food prices are overstated.
Edward Garner, Communications Director at Kantar Worldpanel explains: “There are several reasons why the much talked about food price apocalypse is overstated. Firstly, whilst commodity price increases were passed on to retail prices during previous inflationary hikes, subsequent falls have not been similarly passed on. The opportunity was taken to restore margins and build slack into the system. Secondly, the UK grocery market remains highly competitive with increasing levels of promotion and discount which will limit the ability to pass on raw material increases in full. And thirdly, the pound has recently been strengthening against the US Dollar and the Euro. This should help to unwind the inflationary pressure we saw at the beginning of 2009 when the pound fell sharply and, as a result, we imported inflation.”
Food price inflation fell to a record low of 1.2% during April and May this year, a significant drop from the 9% peak seen at the end of 2008. While low inflation appears to be desirable for shoppers it flattens balance sheets and is problematic for future growth; buying slows with consumers waiting for prices to decrease. Injecting the 4% figure into this context creates a vision of stability, and not one of soaring food prices for consumers to panic about.
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