The rest of the year looks set to be a period of low-level price inflation, says Clive Black
Crops are emerging in the fields of Britain as I write, even with the late spring and unexpected frosts for the time of year.
Most indications from the major global food producing zones is that projected agricultural output is satisfactory, building upon generally fuller stock levels; so from a food security perspective, an issue firmly back on the global politicians' agenda, the outlook is favourable.
With Britain in the throes of a new political era the ConDems period the new government's economic policies will have a material contextual bearing on the value of sterling and so the price of imports.
We sense that the current currency valuations are favourable for the UK economy as a whole, stimulating much needed exports and so manufacturing activity, and sensible economic policymaking should deliver stability. Oil prices are another key force impacting food prices, and it remains within our $70-$85/barrel range.
So, all appears stable leading us to anticipate low-level food inflation for the retailers in 2010, around 1% for the year, rising slightly from 0%-1% in the first half to 1%-2% in the second half.
Much can still blow such projections apart currencies, harvests and oil prices as you can probably gauge from the implicit volatility contained within the factors above. However, after three years of remarkable price volatility, a real Duke of York syndrome (up the hill and down again) it appears that a period of greater stability is to follow.
Of course, one factor could disrupt this calm and that is the imposition of VAT on food. We remain of the view that this will not, and indeed should not, be applied, concurring with Sainsbury's Justin King on this matter that to do so would be bizarre and harmful.
However, the whole industry will no doubt be relieved to gain some clarity from the new government on its position on VAT; we are less confident that the VAT rate will be increased in general, however, which means there is up to a 5% swing year-on-year in 2011.
Low food inflation in a still fragile economy brings with it implications for retailers' trading strategies; an easing back of promotional activity, lesser pricing waves and a further focus on productivity, companies cutting their corporate cloths according to the conditions of the day. Now to see if those seedlings and shoots sprout into life and if Dave and Nick can keep the plates spinning.
Clive Black is head of research at stockbroker Shore Capital.
Crops are emerging in the fields of Britain as I write, even with the late spring and unexpected frosts for the time of year.
Most indications from the major global food producing zones is that projected agricultural output is satisfactory, building upon generally fuller stock levels; so from a food security perspective, an issue firmly back on the global politicians' agenda, the outlook is favourable.
With Britain in the throes of a new political era the ConDems period the new government's economic policies will have a material contextual bearing on the value of sterling and so the price of imports.
We sense that the current currency valuations are favourable for the UK economy as a whole, stimulating much needed exports and so manufacturing activity, and sensible economic policymaking should deliver stability. Oil prices are another key force impacting food prices, and it remains within our $70-$85/barrel range.
So, all appears stable leading us to anticipate low-level food inflation for the retailers in 2010, around 1% for the year, rising slightly from 0%-1% in the first half to 1%-2% in the second half.
Much can still blow such projections apart currencies, harvests and oil prices as you can probably gauge from the implicit volatility contained within the factors above. However, after three years of remarkable price volatility, a real Duke of York syndrome (up the hill and down again) it appears that a period of greater stability is to follow.
Of course, one factor could disrupt this calm and that is the imposition of VAT on food. We remain of the view that this will not, and indeed should not, be applied, concurring with Sainsbury's Justin King on this matter that to do so would be bizarre and harmful.
However, the whole industry will no doubt be relieved to gain some clarity from the new government on its position on VAT; we are less confident that the VAT rate will be increased in general, however, which means there is up to a 5% swing year-on-year in 2011.
Low food inflation in a still fragile economy brings with it implications for retailers' trading strategies; an easing back of promotional activity, lesser pricing waves and a further focus on productivity, companies cutting their corporate cloths according to the conditions of the day. Now to see if those seedlings and shoots sprout into life and if Dave and Nick can keep the plates spinning.
Clive Black is head of research at stockbroker Shore Capital.
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