Food inflation rose in March to 5.4 per cent from 4.2 per cent in February, according to latest British Retail Consortium (BRC)-Nielsen figures.
Stephen Robertson, BRC director general, said: “Weak demand for many goods means retailers continue to battle hard for consumer spending by keeping prices down wherever possible. …The cost of oil has shot up 11 per cent since the start of the year and that’s driven up transport and manufacturing costs, increasing food inflation. Retailers are also shifting away from multi-buy reductions on specific items in favour of money-off coupons for an entire shop, giving customers more flexibility and producing savings on food shopping which don’t show up in this index.
“As a result, overall shop price inflation has edged up slightly but remains well below the official consumer prices figure of 3.4 per cent.”
Suppliers are likely to continue to feel the squeeze as retailers show no signs of abating their promotional activity. Mike Watkins, senior manager, retailer services, Nielsen said:
"Consumers are having to cope with falling disposable incomes with fuel and household energy costs also increasing since the start of the year. With inflationary pressure continuing in the food supply chain we can expect supermarkets to keep a strong focus on promotional activity over the next few months. Shoppers are following the deals and will continue to seek out the best value for money."
The 1.2 percentage point rise in the rate of food inflation was the largest since August 2010. Both the ambient and fresh food categories reported a significant rise in their inflation rates, accelerating to an eight and nine-month high respectively. Notable price rises in the fresh food category came from fruit, vegetables and convenience food.
Retailers are facing rising costs from suppliers while higher energy and transportation costs are also feeding through the supply chain. Average diesel prices pushed past records set in May last year and fears about oil supply in the Middle East have lifted prices above last year’s peak. A weaker sterling has also added to inflationary pressures, the price of oil now around $125 per barrel. The latest input price for home produced food, measured in the Producer Price Index, rose to 2.1% compared with the previous month, the largest rise since April 2011. This was driven by a 13.9 per cent rise in UK-grown vegetables.
Unseasonably dry weather has caused some areas of the country to enter into a drought. If these conditions persist, output yields may fall as a result. This will put inflationary pressure in the UK supply chain.
