UK food inflation drops to lowest since September 2022

August 29, 2023 (MLN): The slowest increase in grocery bills in almost a year drove down inflation in British shops in August, relieving some of the pressure on the Bank of England to keep raising interest rates, as Bloomberg reported.

The British Retail Consortium said that shop price inflation fell sharply again to 6.9% in August from 7.6% the month before.

Food prices led the decline, particularly for meat, potatoes, and cooking oils.

Prices are still rising much more rapidly than the BOE’s 2% target, but the slowdown in the pace of increase indicates hope that a sharp squeeze on households may pass soon.

Food and energy sparked the current round of inflation starting in 2021, but more recently it’s broader services and rising wages that have been driving prices higher.

BRC’s measure of grocery prices climbed 11.5% in the 12 months to August, the lowest rate since September 2022 and down from 13.4% in July.

The figures suggest that the marked cooling in food inflation in official data will continue after grocery bills surged at their fastest pace in more than four decades earlier this year.

The Bank of England is considering how much further it needs to raise rates to contain inflation across the whole economy, which is still more than triple its target.

“The unpredictable weather of recent weeks has dampened consumer demand with some high street retailers increasing promotional activity and food retailers continuing to extend price cuts,” said Mike Watkins, head of retailer and business insight at NielsenIQ.

Markets expect the central bank to push ahead with two more final rate hikes to a peak of 5.75%, including a quarter-point increase at the September meeting.

Industry contacts have told the BOE’s agents that annual food inflation will fall to 10% or lower by the end of the year after an easing in producers’ input costs.

However, the central bank’s Chief Economist Huw Pill has highlighted risks to food prices, such as the collapse of the Black Sea grains deal.

“Russia’s withdrawal from the Black Sea Grain Initiative and its targeting of Ukrainian grain facilities, as well as poor harvests across Europe and beyond, could serve as potential roadblocks to lower inflation,” said Helen Dickinson, chief executive officer of the BRC.

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