Food price inflation is expected to exceed 4 percent this year, the British Retail Consortium (BRC) has warned, in a sharp reversal of the recent trend of slowing retail prices.
According to the lobby group’s forecasts, prices at supermarket checkouts will rise by an average of 4.2 percent in the second half of the year.
Helen Dickinson, chief executive of the BRC, attributed the looming price rises to rising employer national insurance contributions, higher national living wages and levies on fresh packs, all of which leave little room for retailers to absorb the extra burden. “There is little hope that prices will rise anywhere other than just go up,” she said, urging the Government to ensure that the planned shake-up to business rates does not impose further costs on stores already are under pressure.
The BRC’s alarm comes despite indications that overall retail prices fell 1 percent last month, a faster decline than the 0.6 percent recorded in November. Non-food items fell 2.4 percent year-on-year, although the later timing of Black Friday in 2024 compared to the previous year may have distorted the numbers by boosting discount activity.
Dickinson noted that while food inflation appeared to have bottomed out at 1.8 percent, it was now poised to rise again: “With plenty of price pressure ahead, retail price deflation is likely to be a thing of the past.”
The warning coincides with a separate analysis from City investment firm Shore Capital, which suggested that government policy will be the main driver of supermarket inflation this year, rather than commodity prices or exchange rates. The company pointed to the increase in employer contributions, which rose to 15 percent from 13.8 percent in April, as a major blow to supermarkets and major retailers. Tesco, for example, is expected to pay an additional £250 million in costs.
Between 2022 and 2023, rising food and energy bills caused headline inflation in Britain to soar; Food inflation in particular peaked at 19.3 percent in March 2023. A subsequent slowdown in both food and energy costs helped push consumer price inflation back to single digits, although it rose from 2.3 percent to 2.6 percent in November. last month.
Shore Capital warned that any new rise in food inflation could undermine the Bank of England’s current trajectory of cutting interest rates, which currently stand at 4.75 percent. Investors had expected two or three interest rate cuts this year, but that prospect could be in jeopardy if supermarket prices rise significantly again.