Food inflation: Sharp squeeze on consumers continues but hopes of price slowdown on the horizon

04 Jan 2023 --- Food inflation is one of the most significant topics as 2023 gets underway, underscored by the latest data from the UK, which reveals annual growth of Britain’s food prices hit 13.3% in December, the highest since 2005 when records began. This has prompted predictions of another difficult year ahead, but at the same time, food prices in other parts of the world do show some signs of abating, leading to other forecasts that food prices could begin to turn downwards.

It’s way too early to say for sure how food inflation will play out in 2023, but there is a mixed bag of opinions coming from global economists. Although there may be some easing by springtime, this could all turn around depending on energy and fertilizer prices, the impacts of weather on commodities and crops harvest, the on-going war in Ukraine and other changing market dynamics. 

However, chief executive of the British Retail Consortium Helen Dickinson, says 2023 will be “another difficult year for consumers and businesses as inflation shows no immediate signs of waning.”

UK retailers could be forced to put up prices further to offset skyrocketing energy prices which will likely increase again when the Government’s energy bill support scheme for business expires in April. Without the scheme, retailers could see their energy bills rise by £7.5 billion (US$9 billion), warns Dickinson. 

“It was a challenging Christmas for many households across the UK. Not only did the cold snap force people to spend more on their energy bills, but the prices of many essential foods also rose as reverberations from the war in Ukraine continued to keep high the cost of animal feed, fertilizer and energy,” she says. 

The UK’s food inflation hitting 13.3% in December is up from 12.4% in November.The UK’s food inflation hitting 13.3% in December is up from 12.4% in November. This is above the three-month average rate of 12.5%.

Fresh food inflation strongly accelerated in December to 15%, up from 14.3% in November. This is above the three-month average rate of 14.2% and the highest inflation rate in the fresh food category on record.

Meanwhile, ambient food inflation accelerated to 11% in December, up from 10% in November, which is the fastest rate of increase in the ambient food category on record, according to the BRC. 

Has food inflation past its peak?
Global food prices in some countries seem to be easing, preliminary December inflation data from the German statistics office reveals food inflation peaked in the country in November – at 21.1% – only to decelerate to 20.7% last month. 

“Despite some recent weakening, companies’ selling price expectations are still high, suggesting that the pass-through of higher production costs is not over, yet. Also, the ongoing war and new price negotiations in the agricultural sector are likely to keep food price inflation high,” highlights Carsten Brzeski, global head of macro for ING Research.

In the same vein, Francois Sonneville, director of beverages at RaboResearch, told FoodIngredientsFirst that consumers and companies should prepare for years of price fluctuations and unforeseen market disruptions as the world moves into an era of increased volatility.

In the US, the Department of Agriculture (USDA) underscored that food inflation was predicted to stabilize between 9.5% to 10.5% at the end of 2022. With the body forecasting that last December would be the fourth month in a row of decreasing food prices in the country. 

“Food prices are expected to grow more slowly in 2023 than in 2022, but still at above historical average rates,” highlights the USDA.

The government agency predicts food prices to increase between 3.5% and 4.5% this year, with food-at-home prices growing between 3% and 4% and food-away-from-home between 4% and 5%.

Inflation in Asia
Meanwhile, Chinese consumers will see subdued prices in stores as the country has managed to effectively tame inflation, bringing it down from 8.8% in December to 3.7% last November, according to official data.Japan and Egypt, which rely heavily on food imports, are suffering mainly due to their currency losing value against the US dollar.

China is abandoning its zero-COVID policies and easing import regulations by halting health tests on frozen foods, which could help bring inflation to lower levels in the following months. 

Japan is lagging behind other countries as the Statistics Bureau of Japan revealed in December that the nation is experiencing its highest CPI rate – 3.7% – in 40 years, with food prices accelerating in November at a 6.9% annualized rate – up from 6.2% in October.

The country, which relies heavily on food imports, is suffering mainly due to its currency losing value against the US dollar.

US$ too strong
Egypt is having even more problems maintaining the value of its currency against the dollar, with the country being forced to ask for a US$3 billion loan from the IMF. Furthermore, according to the USDA, Egypt imported the lion’s share of its grain from Ukraine and Russia – 82% of its wheat came from the two countries before the war – being forced to look to other markets to purchase the commodity.

The African country relies on the US dollar to purchase wheat supplies, which has to acquire at increased prices due to the Ukraine War. The government has moved in the last months to increase production, making wheat farming a matter of national security.

According to a March Food Policy Research Institute study, Egypt’s annual state spending on wheat imports was expected to be US$5.7 billion in 2022, doubling the expenditure from 2021. 

By Gaynor Selby and Marc Cervera