Blog: Food inflation remains stubborn

Michelle Russell | 8 March 2012

 

The latest data on food prices in the UK has proved a surprise, with the rate of inflation increasing year-on-year.

Figures released by BRC-Nielsen showed the annual rate of inflation was 4.2% in February, compared to the January level of 3.7%.

The group cited the prime driver of food price rises as the ambient categories where inflation was said to be 6.7% year-on-year to February versus 5.6% in the year to January.

The data raised eyebrows as industry watchers expect inflation to ease this year. And suppliers will be keen to see prices fall back after a year in which commodity cost pressure has led to the need to increase prices but that, in a climate of weak consumer confidence, has hit food sales.

 

Figures from SymphonyIRI issued yesterday highlighted the pressure of the increasing shopping basket price - reaching as high as 5.1% in the UK during October to December - is having on the purchasing power of shoppers. 

The price rises caused 1.6% volume declines in the fourth quarter of 2011 for non-food items, and static volumes on food items, with just a 0.3% increase on last year.

According to SymphonyIRI, shoppers are now becoming both frugal and smart, resulting in fewer purchases.

"With prices rising faster than earnings, we are deeply into a consumer recession," said Tim Eales, director of strategic insight at SymphonyIRI Group. "Despite recent reports the Consumer Price Index (CPI) went down last month, it is still proportionally high compared to previous years.

"The truth is that we may be buying less, but the average cost of a shopping basket is still going up."

The figures will come as no surprise to the likes of General Mills and ConAgra Foods, who issued a profit warning and a squeeze on volumes, respectively, last month.

General Mills lowered its forecast for annual earnings in February, blaming "weak" volumes in the US in December and January for the profit warning, which hit its shares.

In the same month, ConAgra's CEO Gary Rodkin warned that the pressure on volume sales in the US is being felt across the industry. He said the whole food sector was being affected by consumer caution in the face of rising prices.

Data from the just-food international basket, covering the fourth quarter of 2011, highlights the circular influence of rising food prices and purchasing power.

"Despite what some commentators feel, the shopper is not powerless in the face of food inflation," said Rod Street of SymphonyIRI. "The true power is increasingly with a smarter, better informed and more vigorous shopper and their product switching, buy-less agenda."


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