Food inflation is still weighing on British shoppers at 16.5%

GROCERY price inflation in the UK dipped lower slightly for another month, though shoppers are still concerned about the impact of food prices on their household budgets.

The rate fell to 16.5 per cent in the four weeks to Jun 11, down from 17.2 per cent the previous month, according to market research firm Kantar. That is the lowest level this year, but still “isn’t something to celebrate”, the market research group said.

The figures mark tentative signs that upward pressure in prices may be starting to ease. Bank of England (BOE) governor Andrew Bailey has warned that inflation is taking longer than expected to ease, after reaching the strongest level in four decades last year.

Prime Minister Rishi Sunak’s government has pressed British supermarkets to curb prices, as grocery inflation proves stickier than in other countries. Retailers have pushed back against accusations that they are profiting from higher prices, noting that supply chain problems following Covid-19 lockdowns drove up the cost of many goods.

Nearly 70 per cent of households are either “extremely” or “very” worried about food and drink inflation, up from just over two-thirds in January. “The ongoing squeeze is clearly weighing on the nation’s mind,” said Fraser McKevitt, head of retail and consumer insight at Kantar. “Of the top five financial worries that consumers have, rising grocery prices is the only one that they are more concerned about now than at the start of this year.”

Upward pressure on prices is one of the factors that has prompted investors to add to bets that the BOE will raise interest rates through the summer. That would intensify a cost-of-living squeeze on consumers, who are shouldering both higher prices in shops and soaring borrowing costs on mortgages.

Shoppers are visiting discount supermarkets, buying fewer items and sticking to supermarkets’ own-brand goods in a bid to save money. People are also preparing simpler dishes with fewer ingredients, according to Kantar. The year-on-year impact of grocery inflation on typical summer purchases is hitting hard too, with ice cream prices up 20 per cent, mineral water up 17 per cent, sausages up 16 per cent and burgers up 13 per cent.

Discounter Aldi was the fastest-growing retailer for the 12 weeks to Jun 11, with sales rising nearly 25 per cent. This pushed its market share up to a record 10.2 per cent. Lidl was close behind, with sales rising more than 23 per cent.

Last week, Tesco chief executive officer Ken Murphy said there are signs that grocery inflation is starting to ease, after the grocer recently cut prices on bread, pasta and broccoli. Britain’s biggest supermarket also expanded its price match with Aldi and dismissed the idea of profiteering.

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Still, he warned that “it’s unlikely that prices will return to where they were”.

Separately, Lloyds Bank said in a report that an index tracking food and drink makers fell to 49.4 in May. This marked the first time in more than seven years that the index fell below the crucial no-change level of 50. The decline was driven by falling commodity prices and energy costs.

Lloyds noted, however, that the prices consumers pay typically take weeks or months to follow a drop in costs for manufacturers, which will try to recoup some of the margin they lost last year when prices shot up.

“It will still take some time before we see the benefit in terms of shelf prices,” said Annabel Finlay, managing director of food, drink and leisure at Lloyds Bank Commercial Banking. “This is, in part, due to the long-term nature of contracts between the manufacturers and retailers, as well as the broader segments of the production chain.”

Finlay added that any further disruptions to supply chains, such as those caused by the pandemic and the invasion of Ukraine, could cause input costs to rise again. She advised manufacturers to review their supply chains and “optimise” working capital to build resilience.

The British parliament’s Environment, Food and Rural Affairs Committee last month opened an inquiry into the fairness of pricing in the food supply chain – a phenomenon dubbed “greed-flation” in the press. The UK Competition and Markets Authority is also examining whether weak competition in the supermarket sector is contributing to higher prices.