FDF reports easing of food and drink inflation

February 18, 2023

Food and drink prices have risen by 16.8% in January, reflecting a slight easing on prices registering 16.9% in December and above UK’s CPI inflation of 10.1%. According to the Food and Drink Federation (FDF), this is the first time in eighteen months that annual food and drink inflation is easing.

Of the 49 main food categories reported in official statistics, only eight recorded inflation in single-digits. The highest rise in annual prices was for low-fat milk at 45.2%, while dried fruit and nuts saw the slowest increase at 2.7%. For ingredients where the confectionery industry is concerned, whole milk registered 37.2%.

Food and drink manufacturers faced higher prices for their ingredients, with ingredients sourced from the UK being 18% more expensive (up from 17.% in December) and imported ingredients 25.8% more costly. Goods leaving manufacturers’ facilities saw inflation at 17%, a figure that has not changed since December.

In recent months, pressures that built up over the last two and a half years have been easing – although the FDF say we are a long way from approaching conditions similar to those of 2019. Wholesale gas prices have declined significantly since November, but wholesale spot prices and gas futures are about double 2019 prices. Global supply chain pressures are easing as well, as oil prices are now about 25% cheaper than in June 2022.

It’s estimated it takes between seven and 12 months for rises in production costs to filter through to final consumer prices – because manufacturers use fixed term contracts to buy suppliers and sell to supermarkets. When commodity prices rises, manufacturers are ‘shielded’ from these changes until they renew their fixed term contracts. This can work in reverse: when prices on the market fall, manufacturers will not receive price cuts until their contracts expire.

According to the FDF, retail food inflation will persist throughout 2023 but it’s likely that food inflation is nearing its peak. Manufacturers seem to be facing down another difficult year – besides cost pressures, the industry is facing a slowdown in consumer demand. The cost-of-living crisis squeezed households and caused them to cut down on their spending.

As the FDF put it: “In summary, there are some reasons to be hopeful, but we’re not out of the woods yet.” Cost pressures have been to decrease, but are nowhere near at the same levels seen before the pandemic. Manufacturers also face difficulties when trying to pass on cost increases, squeezed margins, staff shortages and a decline in real spending.

The FDF have said a way to resolve these issues is with the support of the Chancellor, reforming the Apprenticeship Levy and ensuring new regulations on plastics and packaging, to drive up recycling levels and drive down prices.

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