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Data from ONS shows that overall inflation in the UK continues to ease. Inflation for groceries is also slowing, although it still accounts for one third of the infl ation experienced by the average household.

That’s good news for shoppers; but the bad news is that grocery prices will remain volatile and inflation will be more commonplace throughout the next decade.

Firstly, latent demand for food on global markets remains strong. All the forces that drove last year’s food price ‘spike’ – population growth, Asian affluence, rising energy costs, limited supply – remain. Some commodities are already starting to appreciate and reserves of key grains are tight globally.

Secondly, the EU’s biofuel strategy will impact on grain markets as new processing plants open.

Expansion of carbon trading to affect large businesses will also add cost to food production.

Thirdly, the weakness of sterling causes infl ation for food and energy imports.

Given these pressures, the challenge of keeping prices low for shoppers will remain central to the industry agenda.

James Walton, chief economist, IGD

[First published on letters page of The Grocer, 8 August 2009]