Food inflation drops below 20% for first time in five months

The figure represents the fourth consecutive fall in year-on-year inflation and the first time in five months that the rate has dipped below 20%, the latest CGA Prestige Foodservice Price Index has revealed.

While prices increased by 0.7% month-on-month between February and March, the index showed signs that inflation is steadily slowing after huge challenges throughout the past year.

The downward trend has been driven by an easing of prices in key commodity markets. The dairy and oils & fats categories within the index, which is compiled by data intelligence business CGA by NIQ and buying expert Prestige Purchasing, both recorded month-on-month deflation on the back of improved availability, aided by increased milk production and falling edible oil prices.

Only two of the index’s 10 categories reported month-on-month inflation of 2% or more.

Crude oil costs down

Inflation has also been slowed by significant falls in the cost of crude oil, a major upstream influencer on the price of food. Crude prices fell 24.4% year-on-year and 4.4% month-on-month, which should help alleviate supply costs.

While other factors including labour, energy and currency markets will continue to influence pricing, the new edition of the index forecasts further falls in inflation in the months ahead. However, some categories including meat and sugar are likely to remain volatile as a result of supply uncertainties.

Prestige Purchasing CEO Shaun Allen said: “The continued fall in inflation will be some welcome relief for the hospitality sector.

“However, prices remain high and with eight out of 10 categories still reporting month-on-month increases, the overall cost of food and beverages in the sector continues to rise just at a slower rate. The pressure on operators’ margins is still increasing and acting now to optimise their supply chain and limit the impact is critical.”

CGA by NIQ client director James Ashurst said: “After months of relentless pressure on prices, we can be cautiously optimistic that foodservice inflation is, at last, softening.

“But much damage has already been done to businesses’ costs and consumers’ spending, and with various areas of food and beverage supply still volatile, conditions will remain difficult for some time to come.”

Not enough to be felt yet

Meanwhile, UKHospitality chief executive Kate Nicholls said: “We are beginning to see a positive direction of travel with consistently declining food service price inflation but the decreases we’re seeing are not significant enough to be felt by businesses yet.

“While five months of decline is positive, the fact of the matter is that almost 19% price inflation for food and drink is enough to ruin businesses, especially alongside energy costs and workforce challenges.

“Much more needs to be done to tackle the cost increases businesses are experiencing in a meaningful way and that starts with energy, with Government forcing suppliers to renegotiate contracts with businesses that fixed during the height of the crisis.

“Only by tackling the root causes of inflation can hospitality businesses return to its position of driving economic growth.”