UK food inflation slows down with drops in rates for flour, milk and eggs

21 Jun 2023 --- For the first time since the start of the Ukraine war, the UK has recorded two consecutive months of declining food inflation, raising the hopes of a future brake in price acceleration. May’s food inflation fell to 18.3% from 19% in April, according to The Office for National Statistics.

Essentials such as vegetable oils, flour, milk and eggs have displayed steeper declines in inflation.

Nonetheless, food inflation remains at historic levels not seen since the 1970s and above most other developed nations’ rates.

BRC welcomes fall in food prices
The British Retail Consortium (BRC) has expressed optimism about price inflation abating in the following months.

“While some prices continue to rise, we are now seeing regular news reports of falling prices on many essential products, such as vegetable oil. It has been good to see larger drops in inflation rates for flour, milk and eggs as retailers continue to invest heavily in lower prices for the future and lock the price of many essentials, helping the UK to deliver some of the cheapest groceries in Europe,” explains Helen Dickinson, BRC’s chief executive.

While the BRC says that the UK has cheap groceries, the Competition and Markets Authority (CMA) revealed it is stepping up its work in the grocery sector to ensure that retail markets work well and don’t harm consumers. However, the CMA states it has seen no evidence of specific competition problems.

UK food food inflation was even more relentless earlier in the year due to a vegetable shortage.Moreover, some price relief might occur as the UK enters its growing season. However, some headwinds might lay ahead if authorities don’t tread carefully, according to BRC’s Dickinson.

“With inflation generally trending down, it is vital that the government does not introduce new policies that would add costs to retailers. Government should consider how current timelines for a deposit return scheme and reformed packaging levy (“Extended Producer Responsibility”) could limit the ability of inflation to fall. This is on top of a new Windsor framework labeling and upcoming increases to business rates.”

UK lags behind EU
At the start of the year, the UK food inflation was similar and even below the EU rate (16.7% for the UK compared to 18% for the bloc). However, UK inflation is now 3.3% higher than in the EU (18.3% compared to 15%).

The lag might be explained by the vegetable shortage that the country experienced earlier this year and by the higher reliance of the nation on food imports. Furthermore, some UK growers did not put down crops in autumn due to high-energy crops.

The 0.7% decline in May’s food price is in line with some of the declines in the EU and abroad, with food prices coming down 0.6% in France, 0.9% in Spain, 0.3% in Italy, 1% in the US and 0.3% in Brazil. Some countries, like Germany, displayed steeper decelerations (2.3%).

Meanwhile, Japan is showing the opposite trend, with food inflation in the country rising continuously since September, accelerating 0.6% in April (the last month recorded).

Internationally, a decline in food commodity prices might also offer further relief in the coming months, with the UN Food and Agriculture Organization food price index being at its lowest level since July 2021.

By Marc Cervera