Food price inflation soured to 2.5% from 1.7% in June and the British Retail Consortium (BRC) today warned of further prices rises to come over the coming months.
BRC director general Stephen Robertson said: “Food inflation was higher than the previous month – driven by global factors putting pressure on the cost of fresh food, such as meat and fruit.
“The recent dry weather has increased the price of animal feed and poor harvests have reduced some fruit crops.
“Problems with production in large wheat exporting countries, such as Russia and Canada, could put pressure on overall food inflation in the coming months,” he said.
Overall shop price inflation remained unchanged at 1.5% in July, due mainly to non-food inflation slowing to 1% in July from 1.4% in June.
The BRC-Nielsen Shop Price Index published today showed a rise in food price inflation was driven by the fresh food category, which reported annual inflation of 1.4% from 0.1% in June. Inflation in the ambient food category remained unchanged at 4.1%.
Current levels of overall food inflation are significantly higher than both the three-month and six-month average of 2.1% and 1.8% respectively.
Upward pressure on food inflation has materialised from sharp increases in the cost of animal feed which are trickling through the supply chain.
The National Farmers’ Union (NFU) recently raised concerns the dry weather has led to the yields of silage, which is used for winter feed, halving. This upward pressure is also on the back of rising commodity prices, with palm oil, cocoa and soya oil rising 39%, 23% and 14% respectively year-on-year.
The price of wheat has increased aggressively in the last month, the fastest rate of increase in more than 30 years, partly the result of severe droughts in Russia.
Wheat prices jumped 8% in early August, to the highest in two years – rising nearly 50% since June.
A drought in Australia (the fourth largest wheat producing country) and floods in Canada, Pakistan and India have also added to pressure on supply chains.
Annual inflation in the fresh food category increased to 1.4%, from 0.1% in June. This is the highest rate since January 2010.
Significant upward pressure was applied by the fruit sub-category, reporting its highest inflation rate since April 2009. Both meats and the oils and fats sub-categories remained inflationary. Vegetables, which reported annual deflation in both May and June turned inflationary in July. Fish was the only sub-category to report annual deflation in July, albeit to a lesser extent than last month.
On a month-on-month basis, prices increased 1.0% after being broadly flat in June. This is the largest month-on-month increase in inflation since November 2009.
In July, annual inflation in the ambient food category was unchanged from June’s 4.1% inflation rate.
The sugars, jam and chocolate category increased in July to its highest rate since January 2010. This was offset by slowing inflation in alcoholic beverages and breads and cereals.
The price of some commodities remains up on a year ago, which is likely to apply a degree of upward pressure on the ambient category over the next quarter.
Sugar, coffee (Robusta) and cocoa are up 14%, 18% and 23%, respectively. Wheat prices have been particularly volatile since the end of June, reaching a 13-month high in mid-July.
Poor harvests in key wheat-growing areas, a consequence of adverse weather conditions, will restrict the supply. The full effect is likely to filter through to the breads and cereals category in the coming months. A Russian wheat export ban will also impact the global supply chain.
On a month-on-month basis, prices increased 0.7% after falling 0.4% in June.
Source: BRC/Nielsen
