Cost of food continues to fall

By Nikkie Sutton

- Last updated on GMT

Up and down: dairy is a particularly volatile category when it comes to pricing, according to the index
Up and down: dairy is a particularly volatile category when it comes to pricing, according to the index

Related tags: Foodservice price inflation, Inflation

Raw ingredients prices fell in January this year, when compared with December 2017, thanks to a drop in costs of bread and dairy.

Wholesale foodservice price inflation in January fell from year-on-year inflation of 5.1% recorded in December 2017, marking the lowest point reached by the index since early last year, according to the latest CGA Prestige Foodservice Price Index.

It is partly the result of seasonal trends driven by the supply and demand of key foodservice items, but it could also be an indication that some inflationary pressures that have rocked the industry in the past couple of years might be easing.

It also pulls inflation in the foodservice sector down to roughly in line with the wider level of UK inflation, as measured by the Consumer Price Index.

The index found there was a relaxation of inflation in key categories, including bread and cereals (down by 2.3%); and milk, cheese and eggs (dropped by 0.2%).

Fish prices fell by 2.6% year on year after months of high inflation. Troughs in inflation are to be expected in the early part of any year, but are significantly sharper than usual in 2018, indicating a degree of price correction in the aftermath of the EU Referendum and the consequent weakening of the pound against the Euro and the dollar.

Industry challenges

While there are some positive signs, the index also outlined inflationary challenges that are set to take place in 2018 and beyond.

This included the impact of Brexit on the availability of migrant labour, on which vegetable, fruit, and fish and meat processing industries depend.

There is further uncertainty over oil prices, trade tariffs from the UK meat industry, after it was hit by controversy over food safety standards at Russell Hume, which went into administration last month (February).

Inflation may also be affected by the Government’s introduction of the sugar tax, which is likely to impact demand for soft drinks this year.

The effect of the ‘Beast from the East’ winter weather on farms and others in the foodservice supply chain in the UK and Europe is also yet to be determined, but may well have dented supplies of important food items.

Price volatility

Volatility in inflation appears to settling now and this comes as a relief to the trade, according to CGA client director of food Fiona Speakman.

She said: “The CGA Prestige Foodservice Price Index has identified significant volatility in prices over the past couple of years, and there are few signs of it settling down as we move by the industry, and is a relief to see foodservice come into line with CPI inflation.

“But it should be remembered that some of the pressures pushing down inflation are seasonal, and with factors like Brexit still causing uncertainty, businesses will have to monitor price trends and purchasing very closely throughout 2018.”

Prestige Purchasing head of consulting and insight Christopher Clare added: “Food price inflation (FPI) has seen another fall this month as multiple categories see dramatic drops, notably fish and dairy, which are by far the most volatile categories.

“If the index continues downwards, we may finally see FPI reach levels comparable to those of 2016 however, price fluctuations and continued uncertainty about Britain’s economic future will exacerbate volatility.”

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