City snapshot: Food prices race to 45-year high to keep UK inflation higher than hoped

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Soaring food prices have contributed to a higher-than-expected inflation rate in March, according to the latest government figures.

Food and non-alcoholic drink inflation shot up to 19.1% in the year to March, compared with 18% in the prior month, the Office for National Statistics reported this morning.

It is the fastest rise in food and drink prices in more than 45 years, with food prices alone up 19.6% on an annual basis as bread and cereal surged 19.4%, meat is up 17.4% and fish by 16.7%, while whole milk prices increased 37.9% and eggs rose 32%.

In other categories, olive oil is 49.2% more expensive than a year ago, vegetables are 19.3% higher and fruit is up 10.6%.

The surging cost of food kept overall UK inflation at 10.1%, which is a slight drop on 10.4% recorded in February but higher than economists had expected.

Helen Dickinson, chief executive of the British Retail Consortium, said poor harvests in Europe and North Africa had reduced availability and put pressure on prices for fruit, vegetables and sugar, while the weak pound made importing more expensive.

“With food price inflation likely to slow in the coming months as we enter the UK growing season, we expect wider inflation will continue to ease,” she added. “Nonetheless, prices for consumers will remain high, especially as household bill support is lifted.

“Retailers remain committed to helping their customers and keeping prices as low as possible, by expanding value ranges and offering discounts for vulnerable groups. We need government to play its part by minimising the oncoming regulatory burdens, as these will hinder investment and will ultimately contribute to ongoing higher prices for households.”

One contriutor to falling inflation is the price of motor fuel, which the ONS said was down 5.9% in the year to March, compared with a rise of 4.6% in Feburary.

Petrol prices fell by 1.2p per litre between February and March 2023, to an average price of 146.8p per litre, compared with 160.2p per litre a year ago, while diesel prices fell by 3p per litre to 166.5p per litre, lower than the 170.5p per litre in March 2022.

ONS chief economist Grant Fitzner said: “Inflation eased slightly in March, but remains at a high level. The main drivers of the decline were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year.

“Clothing, furniture and household goods prices increased, but more slowly than a year ago.

“However, these were partially offset by the cost of food, which is still climbing steeply, with bread and cereal price inflation at a record high.

“The overall costs facing business have been largely stable since last summer, although prices remain high.”

Morning update

Beer volumes at Heineken have declined in the first quarter of 2023 as higher prices helped the Dutch brewing giant boost revenues by 9.2% to €7.6bn.

Net revenues recorded organic growth of 8.9% as the group hiked prices by 12.1% in an attempt to offset input cost inflation across all its regions.

However, beer volumes fell by 3.1% on soft demand in Vietnam and Nigeria, with volumes for the group’s premium brands down 5.7%.

Heineken also reported a net profit for the first three months of the year of €403m, down from €417m a year ago.

CEO Dolf van den Brink said strong revenue growth in the first quarter was driven by pricing and disciplined revenue management, while the group materially increased investment behind the brands.

“Business performance in Europe and the Americas regions is encouraging, with consumer demand holding up better than expected in the first quarter,” he added. “Results in the Asia Pacific and Africa, Middle East and Eastern Europe regions were disappointing, hindered by temporary volatility in Vietnam and Nigeria, leading to demand softness.”

Heineken’s full-year expectations are unchanged but the group remained cautious about the impact of the volatile global economy on consumer demand.

“We see the economic environment as volatile and uncertain, making us vigilant and focused,” van den Brink said. “Our gross savings programme continues at force, providing fuel to invest behind our strategy.”

Just Eat Takeaway has upgraded profit expectations for the year despite a big drop in orders in the first quarter.

Total orders declined 14% year on year in the first three months of 2023, fuelling a 8% fall in gross transaction value to €6.7bn, which the group said reflected comparisons with highs during the pandemic.

However, Just Eat lifted adjusted EBITDA forecasts for the year to €275m, up from €225m previously.

CEO Jitse Groen said: “Just Eat Takeaway.com continues to recover from last year’s deceleration, with the Northern Europe and the UK and Ireland segments leading the trend.

“While the year-on-year GTV decline in Q1 2023 is significant, the comparison is with the quarter with the second highest GTV of the pandemic.

“Our efforts to improve profitability are running ahead of plan, allowing us to upgrade the 2023 adjusted EBITDA target to approximately €275m. We now also expect to turn free cash flow positive by mid-2024.”

Fresh cream cake retailer Cake Box has reported a recovery in sales as its performance improved in the second half of its financial year.

In a full-year trading update for the 12 months to 31 March, the group said revenues rose about 5%, with adjusted profit before tax in line with market expectations.

The performanced reflected an improvement in trading in the second half of the year with further new store openings and positive like-for-like sales growth despite tough comparatives from last year, following the easing of pandemic lockdowns.

The cost of raw materials stabilised during the second half, primarily due to reduced freight rates, which led to a marginal improvement in group margins, the group added.

Franchisees continued to face inflationary pressures but introduced measures to mitigate the impact of increased costs and, with the help of “effective marketing initiatives”, sales and margins levels were maintained.

CEO Sukh Chamdal said: “Just as during the pandemic, we have faced an unprecedented set of circumstances this year, with the war in Ukraine causing a rise in energy and raw material prices and a cost of living crisis impacting consumer confidence.

“The business showed resilience during a difficult first half and, encouragingly, we have seen sales recover in the second half, with raw material prices stabilising.

“We continue to strengthen our team and invest in our operations and processes, and with the dedication, determination and commitment of our staff and franchisees we continue to grow the Cake Box customer base and brand.”

The FTSE 100 dipped 0.3% to 7,885.84pts this morning following news of stubbornly high inflation.

Heineken shares rose 3% to €102.90 followings its Q1 update, while Just Eat sank 5% to 1,364p.

Cake Box enjoyed a 5.9% rise to 125p on news of its recovery.

Elsewhere, HelloFresh rose 3% to €24.11, Hotel Chocolat is up 2.8% to 185p and THG is back up 2.1% to 78.4p after yesterday’s heavy fall.

Early losers included Science in Sport, down 5.3% to 9p, Virgin Wines UK, down 2.6% to 38p, and Ocado, down 2.5% to 518.2p.

Yesterday in the City

The FTSE 100 continued its positive momentum, climbing 0.4% to 7,907.12pts.

THG shares came back down to earth yesterday following a 45% jump on Monday’s takeover speculation. The stock tumbled 19.4% to 77.1p as the e-commerce operator reported an operating loss of near to £500m in its latest annual results.

There was little other company news to influence stock prices, but risers included Science in Sport, up 5.6% to 9.5p, WH Smith, up 3.3% to 1,612p, and Just Eat Takeaway, up 3.2% to 1,439p.

Aside from THG, fallers included Wynnstay Group, down 2.6% to 445.8p, and Cranswick, down 1% to 3,012p.