Analysts at IGD are predicting that food prices will surge even higher this summer due to soaring costs, with raised inflation in the sector lasting longer than expected.
In its latest Viewpoint Special Report – Exploring the outlook for food inflation – IGD forecasts that the rise in the cost of essential food items will hit a peak of up to 15% in the coming months. It also warns that the acceleration in food inflation is likely to last until mid-2023, much longer than official forecasts. The study blames several factors, including the impact of the war in Ukraine, pre-existing supply chain challenges, and the limited effectiveness of monetary and fiscal policy.
Recent data released by Kantar showed that grocery prices had risen 7.0% in May, the highest level in 13 years and an increase from 5.9% the month before.
IGD has calculated that the average monthly spend on groceries for a typical family of four will reach £439 in January 2023 – a significant increase from £396 in January 2022. The strongest inflation pressure is expected to come from meat, cereal products, dairy, fruit and vegetables. In particular, products that rely on wheat for feed, such as white meats, are likely to see prices soar in the short term.
The research and training group noted that the economy is facing its strongest period of inflationary pressure since the 1970s. It highlighted that the UK food and consumer goods industry is uniquely exposed to the current pressures due to the country’s reliance on food imports and the impacts still being felt from Brexit.
“From our research, we’re unlikely to see the cost-of-living pressures easing anytime soon,” said James Walton, Chief Economist at IGD.
“This will undoubtedly leave many households – and the businesses serving them – looking to the future with considerable anxiety. If average food bills go up 10.9% in a year, a family of four would need to find approximately £516 extra per year. We are already seeing households skipping meals – a clear indictor of food stress.
“We expect the mood of shoppers to remain bleak for the foreseeable future as they are impacted by rising inflation and a decline in real wages. Shoppers are likely to dial up money-saving tactics as far as possible.”
Recent industry data suggests consumers have already started shopping more at discounters, buying less, and switching to cheaper own-label ranges.
The report also highlights the predicted rate of inflation is likely to push the economy into recession or, at least, into “stagflation”.
To tackle inflation, the Bank of England raised interest rates today for the fifth time since December.
NAM Implications:
- Why not run some what-ifs re 15% inflation into 2023 and onwards…
- …to assess impact on your categories…
- …directly and indirectly.
- IGD are courageous (and realistic) to put a figure on inflation and duration.
- How about it?
