LONDON (Reuters) – U.S. bank Citi said on Wednesday that food inflation in Britain is on track to hit 20 percent in the first quarter of next year, after the latest official data pointed to more price increases in the pipeline.
Overall consumer price inflation hit a 40-year high of 9.1% in May, as rising food costs – especially bread and meat – replaced higher energy prices as the main driver of the latest CPI increase.
While the Russian invasion of Ukraine disrupted supplies of grain and vegetable oil, food prices in general rose due to bad weather and higher energy prices, increasing the cost of fuel, freight, and fertilizer.
The prices of food and soft drinks paid by consumers in May were 8.7% higher than a year ago – the largest increase since March 2009 – and manufacturers’ ingredient costs are rising faster.
Prices paid by manufacturers for domestic food rose 10.3%, while costs for imported food – which account for nearly half of Britain’s consumption – rose by 20.5%, the largest rise since December 2008.
“Food inflation has exceeded our expectations. We now expect price growth here to peak at just over 20% in the first quarter of 2023, with producer price inflation here continuing to accelerate,” Citi economist Benjamin Nabarro wrote in a note to clients.
Industry forecasters last week, the Institute for Grocery Distribution (IGD), projected that food inflation would peak at 15% in the coming months, and they said some families are already giving up meals.
Soaring food prices are of particular concern to Britain’s poorest families, who spend a higher proportion of their income on meals. Supermarkets report that shoppers are trading to cheaper ranges.
Citi said the emergence of higher food prices is likely to put more upward pressure on wage demands than other types of inflation – a concern for some Bank of England officials who fear large wage increases will drive up inflation.
(David Milliken reports)
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