The rate of inflation in the UK reached its highest level since January 2024 last month, as the impact of higher staff costs and ingredients was felt on supermarket shelves.
Data from the Office for National Statistics shows that the Consumer Prices Index (CPI) rose by 3.6% in the year to June, up from 3.4% in May, with transport, particularly motor fuels, also making a significant upward contribution. Economists had expected no change.
The rate for food and non-alcoholic beverages hit 4.5%, up slightly from the 4.4% recorded in the previous month. This was the third consecutive increase in the rate and is the highest recorded since February 2024, but is well below the peak seen in early 2023.
On a monthly basis, food and non-alcoholic beverages prices rose by 0.3% in June, compared with a rise of 0.2% a year ago. The ONS noted that there were small upward effects from 3 of the 11 food and non-alcoholic beverages classes, namely bread and cereals (particularly cakes), meat, and milk, cheese and eggs (mainly cheddar cheese). These were partially offset by small downward effects from the sugar, jam, syrups, chocolate and confectionery class (from chocolate products), and mineral waters, soft drinks and juices (from fruit juice).
The Food & Drink Federation (FDF) called the rise of food and drink prices part of “a concerning trend in 2025” in the wake of the government raising employer national insurance contributions and the minimum age.
Balwinder Dhoot, the trade body’s Director of Sustainability and Growth, said: “Food and drink inflation has consistently outpaced the overall rate of inflation throughout the year, and seen sharp increase in the past 12 months. It was 1.5% in June 2024, up to 4.5% last month, and we expect inflation to rise further this year.
“The pressure on food and drink manufacturers continues to build. With many key ingredients like chocolate, butter, coffee, beef, and lamb, climbing in price – alongside high energy and labour expenses – these rising costs are gradually making their way into the prices shoppers pay at the tills.
“The government’s new Food Strategy is an opportunity to create a more resilient food system. This should include looking again at the costs and regulations facing food and drink manufacturers in order to address creeping price inflation.”
Meanwhile, the British Retail Consortium (BRC) noted that the ongoing impact of the government’s budget, combined with poor harvests caused by extreme weather, was leading to price hikes.
“With rising costs already driving up prices at the till, the Chancellor must take action now to protect consumers from inflation rising further,” said BRC director of insight Kris Hamer.
“The proposed business rates reform would drive up costs for many high street stores, limiting investment and pushing up prices for everyone. If the government wants to support households and high streets, they should ensure that no shop pays more as a result of these changes.”
Inflation remains much higher than the Bank of England’s target rate of 2% with economists expecting it to peak at around 4% in the autumn.
Professor Joe Nellis, economic adviser at the advisory firm MHA, said of the ONS data: “This is a reminder that while price rises have slowed from the highs of 2021-23, the battle against inflation is far from over and there is no return to normality yet – especially for many households who are still feeling the squeeze on essentials such as food, energy, and services.
“However, while the Bank of England is expected to take a cautious approach to interest rate policy, we still expect a cut in interest rates when the Monetary Policy Committee next votes on 7th August.
“Despite inflation at 3.6% remaining above the official 2% target, a softening labour market – slowing wage growth and decreasing job vacancies – means that the MPC will predict inflation to begin falling as we head into the new year, justifying the lowering of interest rates.”
NAM Implications:
- Consumer perception of the rate of inflation appears to be greater that the official stats.
- Or so their action/inaction in terms of buying behaviour (moves to own label and discounters) appears to indicate.
- The key for suppliers and retailers is which measure is most useful in business?
- And with more inflation to come via headline cost price and tax increases…
- …the perception-official inflation gap can but widen.
- Caution…
