The UK has returned the lowest food inflation of the year with fresh food spearheading the fall and suggesting the “worst food prices are behind us”.

Annual food price inflation was at 6.4 per cent in May compared with 7.9 per cent last month while the overall annual shop price inflation 1.3 per cent in May compared with 1.4 per cent in April, according to figures released today by the British Retail Consortium (BRC)

Stephen Robertson, BRC director general, said: “This is the lowest food inflation rate of the year so far. This was largely driven by the biggest fall in fresh food inflation since the index began in December 2006.

“Food inflation has been falling since March, suggesting that the worst food rice rises are behind us. Significant falls in the cost of commodities, such as oil, and the pound’s recent stabilisation have helped ease inflationary pressures.

Mike Watkins, senior manager of retailer services at Nielsen, said: "Fresh food inflation has now fallen for a third consecutive month. It appears that the pound's recent depreciation has had most of the effect it's going to on food prices and we are seeing the benefits of lower commodity prices working through to shop prices.

“With summer approaching, supermarkets are using high levels of promotions on seasonal lines to draw in customers which are also helping keep food prices lower.”

The depreciation of sterling has been the overwhelming force keeping food inflation high in the UK. During the last twelve months many retailers have hedged against the worst of the currency depreciation. However, as this is renewed, with many contracts ending this summer, it is inevitable that there will be increasing pressure on retailers’ cost bases.

There is uncertainty about how businesses will deal with the rise in the cost of imports which is highly dependent on in which sector the business operates.

Some companies have had no choice but to pass on some of this increase to consumer prices. The grocery sector, for example, operates on such small margins that it has limited capacity to absorb increases in input costs, claims the BRC.

Topics