The majority of companies are bracing for increases in commodity prices in the coming months as geopolitical turmoil continues, according to new research.
Supply chain specialists Inverto found 65% of companies expect commodity price increases next year, up from 48% last year. Meanwhile, only 13% expect prices to decrease, a steep drop from last year’s 41%.
The volatility of raw materials prices is due to an array of factors, not least geopolitical supply chain disruptions still taking place in the crucial Red Sea trade route and the potential increase in costs linked to Donald Trump’s proposed tariffs on goods from all over the world.
The US president elect confirmed this week he would introduce 25% tariffs on goods coming from Canada and Mexico on day one of his presidency, and also vowed to add an extra 10% on goods coming from China.
All three countries have warned of retaliation, with many experts warning Trump’s proposed tariffs could lead to a full-blown trade war, with devastating effects for UK importers and exporters.
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Around four in 10 businesses said that geopolitical risks have driven changes in the source of their supplies, Inverto’s survey showed. And over one third (38%) of participants said commodity price rises were “significantly impacting their business results”.
Among the proactive steps businesses were taking to mitigate supply volatility included increasing use of dual or multiple sourcing of raw materials, and focusing on “friendshoring” – establishing supply chains in politically aligned regions – to safeguard supply.
The findings came as the latest CPI figures showed headline inflation rising to 2.3% in October – the first rise in the rate of price increases in three months, and largely linked to an increase in energy bills.
And while food inflation remained unchanged at 1.9%, many UK-manufactured products are energy-intensive and rely on imported commodities, with some showing no sign of price easing – such as cocoa, coffee and olive oil.
Read more: Donald Trump’s proposed tariffs add to olive oil sector’s woes
The Food and Agriculture Organization (FAO) Food Price Index (FFPI) averaged 127.4 points in October 2024, up 2% from its revised September level and the highest level in 18 months, since April 2023.
Prices for all commodities in the index, except meat, rose, with vegetable oils recording the largest increase at 7.3%. Overall, the FFPI in October was 5.5% higher than its corresponding value a year ago.
Kris Hamer, director of insight at the BRC, said last week: “Food inflation stayed at 1.9%, although poor harvests have pushed up the price of some fresh items, such as fruit.
“In non-food, furniture items remain in deflation with consumers remaining cautious about the purchase of larger items, whilst clothing inflation edged up slightly – although we can expect this to fall as Black Friday sales roll out next month.”
Additionally, retailers have warned of the effects the Chancellor’s budget will have on inflation.
“The retail industry is bracing for £7bn of additional costs in 2025 as a result of changes to employers’ National Insurance contributions, an increase to the minimum wage and a new packaging levy,” Hamer said. “For an industry that already operates on slim margins, these new costs will inevitably lead to higher prices.”
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