Food Prices Could Rise By Almost A Fifth This Autumn, Officials Believe
Exclusive: Food inflation could come close to 20% this year, some government officials believe, in the latest glimpse of the worsening cost-of-living crisis that awaits Boris Johnson's successor.
A range of factors including labour shortages, rising transport costs, and soaring energy prices, which in turn drive higher fertiliser prices, resulted in food inflation hitting 9.4% in June, meaning everyday food items became more expensive for shoppers.
It is expected that food inflation will rise further still, with industry chiefs warning that they do not expect Russia's invasion of Ukraine – which has impacted the cost of energy and grain in particular – to filter through to supermarket prices until later this year.
PoliticsHome understands that officials within government currently believe food inflation could hit nearly 20% in 2022, though this is regarded as a worst-case scenario and based on a high degree of speculation.
A Whitehall source stressed that it is difficult for the government to project food inflation with confidence at the moment as there are a number of important variables at play: chiefly, whether Russia respects its recent deal with Ukraine to let grain leave Ukrainian ports and enter the global market, and whether the Kremlin decides to further reduce gas supplies to Europe.
It is also not yet known for sure how recent extreme whether will affect crops around the world, which could also have an impact on prices.
If the price of a loaf of bread increases by 20% year-on-year this December, that means a loaf that cost £1 last Christmas would cost £1.20 this time around, while a £50 groceries shop would cost £60.
Jayne Almond, the Director of Policy at the Food and Drink Federation (FDF), told PoliticsHome that food inflation "is set to continue well into 2023" because the effects of Putin's attack on Ukraine, which add to pre-existing pressures on food prices, are yet to be felt by the industry.
"Ukraine and Russia are significant global suppliers of wheat, other grains and sunflower oil, and Russia is a major player in fertiliser and natural gas markets. The war in Ukraine has severely disrupted supplies of these goods," she said.
“All of this means food and drink manufacturers have been faced with relentless and significant cost rises for nearly two years. The costs of everything that is needed to make food, including ingredients, raw materials and energy have increased.
“Food and drink manufacturers are doing everything they can to contain inflation and to limit price rises for hard-pressed households, but the situation is undoubtedly very challenging, with the cost of ingredients and energy still rising and labour shortages biting."
According to the FDF's June inflation figures, the largest prices rises were in milk, cheese, eggs (14.8%), and in oils and fats (16.6%).
Baked goods like bread and biscuits are also expected to see significant prices rises this autumn, as they are made using gas-powered ovens, which because of the rise in energy prices, are increasingly expensive to run.
Food inflation is just one of many pressures on household bills as the country braces itself for the ongoing cost-of-living crisis to become even more acute in the coming months.
The energy price cap, which is set by regulator Ofgem, is expected to rise again from £1,971 in October, potentially reaching £3,400. It is then expected to be raised further in January.
Martin Lewis, the personal finance expert, said last week he'd "never seen anything like" the current cost-of-living crisis and warned that it "would throw many households into a terribly difficult financial situation that will leave them making some awful choices".
Lewis said that the proposals put forward by Tory leadership candidates Liz Truss and Rishi Sunak to help people deal with rising costs were "trivial in the big picture of this".
A spokesperson for the Department for Environment, Food and Rural Affairs (Defra) told PoliticsHome: “We recognise the impact of rising food prices, as a result of global shocks including the spike in oil and gas prices, and the conflict in Ukraine.
"We are engaging closely with industry to understand potential pressures on our food supply chain, which has shown resilience in coping with unprecedented challenges.
“We are already taking a number of steps to support British farmers, including ensuring they have the workforce they need through our seasonal workers scheme, and informing policy through the UK Agricultural Market Monitoring Group. We have also brought forward 50% of the BPS payment and delayed changes to the use of urea fertiliser to help farmers manage their costs.”
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