Food price inflation is expected to rise to more than 4 per cent this year, in a sharp reversal of a recent trend of slowing shop prices, the British Retail Consortium (BRC) has warned.
According to forecasts by the lobby group, prices in supermarkets will rise by an average of 4.2 per cent in the second half of the year.
Helen Dickinson, chief executive of the British Retail Consortium, attributed the impending price increases to higher employers’ National Insurance contributions, higher National Living Wage rates, and new packaging duties, all of which will leave little room for retailers to absorb the additional burden. “There is little hope of prices going up anywhere else,” she said, urging the government to ensure the planned change in business rates does not result in further costs on stores already under pressure.
The British Retail Consortium’s warning comes despite evidence that overall shop prices fell by 1 per cent last month, a faster fall than the 0.6 per cent recorded in November. Non-food items were down 2.4 percent year-on-year, although the later timing of Black Friday in 2024 compared to the previous year may have distorted the numbers by boosting discount activity.
Dickinson noted that while food inflation appears to have bottomed out at 1.8 per cent, it is now on the verge of rising again: “With several price pressures on the horizon, shop price deflation is likely to become a thing of the past.” “.
The warning coincides with a separate analysis from city-based investment firm Shore Capital, which suggested government policy would be the main driver of grocery inflation this year, not commodity prices or exchange rates. The company pointed to the increase in employers’ National Insurance, rising to 15 per cent from 13.8 per cent in April, as a major blow to supermarkets and large retailers. For example, Tesco is expected to face additional costs of £250 million.
Between 2022 and 2023, rising food and energy bills will push up the UK’s overall inflation rate. Food inflation, in particular, peaked at 19.3 percent in March 2023. The subsequent slowdown in food and energy costs helped push consumer price inflation back into the single digits, although it rose to 2.6 percent in November. From 2.3 percent in November. previous month.
Shore Capital warned that any renewed rise in food inflation could undermine the Bank of England’s current path of cutting interest rates, which currently stands at 4.75 per cent. Investors had been anticipating two or three interest rate cuts this year, but that prospect could be threatened if supermarket prices start rising significantly again.
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