Has food price inflation peaked? It’s the wrong question to ask

Has food inflation peaked? We’ve already started to see overall inflation coming down to 10.5% as fuel prices fall and government support kicks in, ONS data out this week shows.

And Kantar’s report earlier this month showed December food price inflation dropping for the second month running – to 14.4%. It seems the concerted efforts of supermarkets and suppliers to keep prices down is having an impact. Inflation on the vegan 33 basket this week, for example, was just 8.5%.

So with commodity prices also softening, there is growing optimism that food inflation – forecast by the IGD to hit 17%-19% this spring – may not reach those highs after all. Which would obviously be great news.

On the other hand, those ONS figures had food inflation rising again this week – to almost 17% – so the signs of it peaking are at best contradictory. And some hefty price hikes are still going through: following our reports last week on the 10,000 price hikes introduced since the new year – including further spikes on KVIs like Heinz Beanz and Colgate toothpaste – this week we report on a fresh wave of price increases on milk that have taken annual inflation on one SKU to as high as 73%… and that’s in Aldi!

As Premier is praised for its success in passing inflation down the line, we also note how the cost of Bisto gravy is up 51%.

And as we reveal the full extent of the price hikes on Heinz products across the major multiples there are increases of as much as 75% on one product… and that’s in Lidl!

A new report by Which? suggests trust in supermarkets has plummeted from +67 in May 2021 to +41 today on the back of this runaway inflation, and with some supermarkets posting punchy profit forecasts, it’s hardly a surprise the highest trust is now placed in Aldi (+48) and Lidl (+45). But if even Aldi and Lidl are powerless to prevent price hikes of this magnitude, it shows how serious the situation still is.

It’s true, some supply chain costs are indeed falling, but as we know there’s always going to be a lag. What’s more, there are still supply shortages in some areas like olive oil, not to mention labour – the latter compounded by wage inflation resulting from the wider inflationary situation – which are also unhelpful, meaning suppliers will be wary of lowering prices too soon, if they even want to.

Nor does it help that, while the government has rightly supported some sectors with especially high energy costs, poultry suppliers and protected crop growers have inexplicably been hung out to dry.

In any case, whether food price inflation has peaked is the wrong question to ask. At some point it will cancel itself out as it annualises. But that doesn’t mean things become more affordable even if inflation falls to zero – on a two-year basis prices will still be up – and it will take a long time for wages and consumer spending power to catch up with that.

No. The real question is when prices themselves will actually come down, and by how far. We’re all keen to see them fall. But some inflation is now baked in to the pie. And a lot of fingers are getting burnt.