Input inflation for farmers has more than halved since October but gap between input costs and output prices continues to increase
Agricultural inputs’ inflation (‘agflation’) has started to decline but continues to outpace general economic inflation (CPI) as well as agricultural outputs and food prices, according to research by The Andersons Centre.
Estimates for January put agflation at 18.7% annually, significantly ahead of agricultural outputs (11.1%).
Although the general economic inflation (CPI) and food prices (CPI Food) continue to rise, currently standing at 10.5% and 16.8% respectively, there is still a gap between the food price inflation that consumers face and the increased input costs that farmers must manage.
Therefore, UK agriculture continues to experience a cost of farming squeeze, Andersons concluded.
Although agflation remains higher than food prices, it is declining. In July 2022, it peaked at 26.3%.
That said, throughout 2022, agricultural input cost inflation generally surpassed price rises for agricultural outputs.
The only exception came in October and November when both indices were aligned.
In December and January, the agricultural outputs’ inflation rate has more than halved, declining from 22.9% in October to 11.1% in January. It is now 7.6 percentage points lower than agricultural inputs’ inflation.
This signifies a challenging period ahead for farmers as the gap between input cost rises on the one hand and output prices on the other continues to widen.
Andersons pointed out that while general economic inflation looks to have peaked and several commentators are forecasting that the inflation rate will decline significantly during 2023, food prices continue to rise.
“This should not come as a surprise at this juncture because there tends to be a lag between the rates of inflation for agricultural commodities (inputs and outputs) and the inflation rate for food prices,” Andersons explained.
“In the past year or so, this has been in the region of six months. With agricultural inflation peaking in July, one would anticipate that the CPI Food index will also peak shortly, if it has not already done so.”
Andersons ‘agflation’ and UK Consumer Prices Index (CPI) – 2015 to 2023
