Bank Of England Expects Food Inflation To Hit 5.5% This Year

After cutting interest rates yesterday, the Bank of England warned that climbing food prices will cause inflation to surge even higher in 2025.Economists at the Bank blamed rising food prices on several factors, including changes to packaging regulations and increased labour costs, as a higher proportion of workers in the retail sector are paid the national living wage, which the Chancellor Rachel Reeves increased by 6.7% in April.

They also blamed higher employment taxes announced in the Autumn Budget, saying: “Furthermore, overall labour costs of supermarkets are likely to have been disproportionately affected by the lower threshold at which employers start paying NICs… these material increases in labour costs are likely to have pushed up food prices.”

Responding to the Bank of England’s comments, Helen Dickinson, Chief Executive at the British Retail Consortium, said: “The Bank of England report outlines how the last Budget continues to push up food prices.

Government policy will add £7bn to retailer costs this year, from higher employment costs to the introduction of a new packaging tax. Food prices have already been climbing steadily, and the BRC has warned this is only the beginning, food inflation means poorer families being hit the hardest by the Treasury’s decisions.

“While retailers are doing everything they can to shield their customers from rising prices, their ability to absorb further costs is extremely limited. If government goes ahead with its planned higher business rates threshold for 4,000 larger stores – including many supermarkets – then it will be ordinary households who suffer the most.”

Food and Drink Federation (FDF) Chief Executive, Karen Betts, added: “Food and drink inflation is rising noticeably again and currently this shows no signs of easing.

Global energy and commodity prices are rising once more, and this comes on top of new taxes and regulatory costs, like higher employer National Insurance Contributions and this year’s new packaging tax.

Food and drink manufacturers try to absorb as many of these costs as possible to protect shoppers, but the fact is that making food and drink in the UK is more and more expensive to do.

“It’s critical that government takes decisive action to cut red tape and promote growth and investment across the food and drink sector, including ensuring there are no further cost increases to businesses in our sector in the autumn Budget.”

NamNews Implications:

• Meanwhile, consumers are driven by perceived inflation…
• …especially for food.
• (and more government-caused cost increases in the pipeline)
• A perception that it is more than the official stats.
• Anyone in real doubt, try doing the household shopping, alone for a few months…
• ...and study the actions of fellow shoppers.
• Anticipate increased switching to own-label equivalents and discounters.

Sainsbury’s Hikes Cost Of Meal Deal Again

Sainsbury’s has increased the cost of its standard meal deal by 5% – the second hike in less than a year.

According to trade publication The Grocer, the price of a main product, a side, and a drink at the supermarket has risen this week from £3.75 to £3.95. This follows a 25p increase in July 2024, meaning the price of the Sainsbury’s meal deal has increased by 12.8% over the last year.

The cost of its premium meal deal has remained unchanged at £5 since it was introduced in 2022.

Sainsbury’s did not tell The Grocer what was driving the latest price increase. However, the report noted that the supermarket has recently expanded its food-to-go range, adding 35 new products.

The hike means Sainsbury’s meal deal is now priced significantly higher than its rivals. Tesco’s equivalent meal deal costs £3.60 for Clubcard members, whilst Morrisons charges £3.60 for More Card holders.

A Sainsbury’s spokesperson insisted that it “continued to offer one of the best value meal deals around”.

NamNews Implications:

• Consumers who benchmark inflation by the official stats…
• …will perceive a 12-month 12.8% increase in price of a Meal Deal as greater than inflation.
• Couple this with the fact that Sainsbury’s ‘meal deal is now priced significantly higher than its rivals’…
• …means that Sainsbury’s and rivals will watch consumer reaction with interest.

Inflation, the next planning factor?

Given the post-Brexit fall in the pound, it follows that imported ingredients will cost more…
Add the recent BOE reduction in interest rates (0.5% to 0.25%!!), means the pound is even less attractive vs. other currencies.

Stir in the fact that UK food manufacturing costs are rising by around 10%, and you have a recipe for increased inflation, causing prices to rise in line with demand…

Except for UK retail

Already on reduced margins, major multiples cannot afford to absorb any cost increases.  Equally suppliers, having stripped out any ‘excess' costs, are unable to take any more pain... Meanwhile, the price war/s make it unlikely that shelf prices will bear any significant upward movement without loss of share.

All of this means increasing pressure on the mults, loss of market share and the growing importance of alternative routes to consumer.

For suppliers it means re-balancing their customer portfolios to reflect the new realities, secure in the knowledge that at least some of the competition will await a return to normal before being forced to change…