Food price inflation could hit 17-19% early next year, says analyst IGD

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The rate of food price inflation will peak at 17-19% in early 2023, then begin to slow over the following 12 months, suggests a new forecast by grocery market analyst IGD.

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Speaking at today’s Insight & Impact 2022 conference in London, IGD chief economist James Walton said the biggest food price inflation drivers would come from meat, fruit and vegetables, dairy and bread.

Inflation will likely remain above zero at the end of 2023, although price reductions may occur beyond that point if market conditions permit, Walton said.

Harvests in 2023 and the value of sterling will be key factors.

In June of this year, IGD initially calculated that food price inflation would likely accelerate until autumn 2022, peaking at 14-16%, then dissipate by mid-2023.

However, major strategic changes have affected the food supply chain since June, including significant input cost pressures, a tight labour market, continued supply chain disruption and the ongoing war in Ukraine.

Walton said: “There is no doubt this is a daunting prospect for both households and businesses. Already we can see the food industry pulling together and retailers putting themselves in the shoes of shoppers to understand how best they can support them during this difficult time.

“While it’s clear that there are considerable global and UK-specific economic headwinds ahead, there is some light at the end of the tunnel, with food inflation expected to dissipate slowly during 2023.

“Consumers will be looking to the food industry to keep prices affordable.

“We know inflation will eventually come to an end, and we will start to see significant drivers of overall inflation begin to drop off over the coming months.

“Food businesses will need to focus on maximising efficiency to deliver the best possible prices for shoppers and look for opportunities to bring prices back down, as soon as possible.”

Walton added: “Surging inflation has damaged workers’ spending power in a way Covid did not. It is now down by about 6% year on year.”

He added that oil prices had fallen from their most recent highs, offering some respite but only in the short term.

Matthew Stoughton-Harris, economics and public policy manager at IGD, said rising Bank of England interest rates – already their highest in 14 years – would likely peak at 5.2% next year.

“That’s going to have a significant impact on household disposable income,” he said, with an average annual mortgage increase of £5,736 and a knock-on effect on rental costs.

The predicted 10% fall in house prices would also affect consumer spending decisions, as for most people, their home is their biggest single asset.

But grocery retailers would be under pressure to keep their prices low in order to help shoppers through the crisis, meaning price competition between supermarkets would remain intense.

Grocery price inflation hits 14.7% and still too early to call the ceiling, says Kantar