UK Food inflation decreased in May, raising expectations that the sharp rise in grocery prices, which had kept the overall consumer prices index painfully high so far this year, may have peaked.
The British Retail Consortium (BRC) said that annual food inflation dropped this month from 15.7% to 15.4% after more than a year of rapid price hikes, even as the growth in retail prices as a whole reaches a new high.
Fresh food inflation, which had been skyrocketing due to astronomical price hikes for eggs, milk, cheese, and sausages, dropped from 17.8% to 17.2%. The BRC said that while the decrease in UK food inflation in May was modest, it indicated that food-price inflation had peaked and was starting to come down. The government is working on plans for a voluntary price cap on essential items like bread and milk, but retail groups have criticized the proposal as ineffective.
Several forecasters, including the Bank of England, have raised their estimates for inflation in response to predictions that food prices would remain high throughout the summer and autumn. The Bank now expects inflation to be above 5% by the end of the year, compared to its previous forecast of around 3%.
Reduced Energy and Commodity Costs
Helen Dickinson, the BRC chief executive, attributed the lower retail prices primarily to reduced energy and commodity costs, which led to decreases in prices for some staple foods. Competition among UK supermarkets played a role, keeping British food prices among the lowest in Europe.
However, the BRC cautioned that Britain’s reliance on food imports from Europe could reverse this trend due to incoming post-Brexit border controls. The organization urged the government not to burden retailers with additional costs, such as the upcoming border checks and packaging recycling fee reforms.
The Bank of England is expected to raise interest rates from 4.5% to 4.75% next month in an effort to reduce CPI inflation, which decreased less than anticipated in April, largely due to high food prices and the persistent cost of business services.
While food inflation fell, non-food prices increased, with footwear, books, and home entertainment experiencing heavy discounts. Non-food inflation reached 5.8% in May, slightly up from April’s 5.5% and above the three-month average of 5.7%. Overall, retailers raised prices by 9%, slightly higher than April’s 8.8%, leading to a rise in shop price growth.
Retailers reported that consumers were seeking seasonal promotions and utilizing supermarket loyalty schemes to save money and mitigate the impact of inflation. The competitive nature of food retailing, particularly, may suggest that recent price cuts in fresh foods signify the peak of inflation.