‘No end in sight for sustained inflation’

By Nikkie Thatcher

- Last updated on GMT

Rising costs: the oils and fats category is seeing 37% inflation year on year (image: Getty/Zero Creatives)
Rising costs: the oils and fats category is seeing 37% inflation year on year (image: Getty/Zero Creatives)

Related tags Food Finance ukhospitality

Inflation for food marginally eased in February this year but is still above 20%, signalling the need for urgent intervention to save businesses, it has been warned.

Year-on-year, food inflation was at 20.6%, behind the record high of 22.9% in December 2022, the latest CGA Prestige Foodservice Price Index found.

The data showed there is now clear evidence price hikes are beginning to slow. The full basket of food measured by the index increased by 0.7% month on month – a third of the average rate recorded in the latter part of last year.

It predicted this, alongside prior year base effects, should continue to decrease inflation during the remainder of 2023, with prices increasing but at a slower rate than 2022.

However, all categories including in the index continued to show double-digit inflation. Oils and fats were the highest at 37% year on year while sugars, jams and syrups were the lowest at 12%.

Macro influences on the price of food including oil prices, commodity markets and exchange rates are now stable compared to last year. The price of oil remained level in February at $84 per barrel while sterling was stable against the Euro at €1.13 and slightly down against the dollar at $1.20.

Furthermore, the index pointed to lower consumer demand in the sector impacting sales volumes, suggesting this should also help ease prices.

Significant challenge

However, the significant challenge of energy and labour costs remains meaning the rate of inflation decline could be slow for some time.

Prestige Purchasing CEO Shaun Allen said despite decreasing inflation, the pressures on operators were predicted to increase this year.

He added: “Although the rate of increase will slow, supplier food prices will continue to increase during the year – at a time when consumer demand will be tightening and scope for increased menu pricing will be limited. Operators should take action now to optimise their supply to preserve margin.”

The easing of foodservice price inflation after months of historically high numbers was welcomed by CGA by NIQ client director James Ashurst.

“Key indicators point to further respite as the year goes on but commodity markets and oil prices remain vulnerable to various macro and micro pressures, so there is no room for complacency,” he said.

“With pressure on consumers’ spending continuing, trading conditions will remain very challenging for businesses across the sector.”

Trade body UKHospitality has urged energy regulator Ofgem to force suppliers into engaging in automatic renegotiations for the firms paying higher costs.

Unsustainable inflation

Chief executive Kate Nicholls said: “It’s becoming ever clearer this level of inflation is simply not going to budge for a significant period of time and while there have been extremely marginal reductions, there appears to be no end in sight for businesses.

“The 20% level of inflation in food service we are seeing confirmed once again today, alongside £7.3bn per annum in rising energy costs as a result of the reduction in Government support, is unsustainable.”

She warned without intervention and action on energy costs, the pub sector could see more closures.

“We have already seen 150 pubs lost for good​ so far this year and that really will be the tip of the iceberg if nothing is done,” Nicholls added.

“Energy costs, food price inflation and staffing shortages are a triple whammy that are dragging businesses to failure. Something has to be done or hospitality will look like a shell of itself in a year’s time.

“The simplest action on offer is to get energy suppliers in line. It is Ofgem’s job to do that and we need to see action urgently.

“Automatic renegotiation of the highest cost energy contracts, signed during the peak of the crisis, needs to be enforced and suppliers need to show flexibility in their payment rates.

“Those two actions would remove a huge weight from the shoulders of businesses and decrease the possibility of venues to put up prices to survive – a move which ultimately fuels further inflation.”

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