Blog: Katy AskewRetailers face food inflation backlash

Katy Askew | 9 March 2011

Food inflation is always going to ruffle feathers. Nobody likes paying more for stuff. But when it comes to non-discretionary spending on goods like petrol or food, price hikes can make a tangible difference to the quality of people's lives.

Deservedly, then, significant changes in these costs attract considerable media attention. Remember the "chaos at the pumps" headlines that dominated discourse in the UK in the none too distant past? Well, now its food retailers who are facing a grilling from the country's media.

Fresh figures from the Organisation for Economic Cooperation and Development revealed today (9 March) that January food inflation in the UK reached a startling 6.3% on an annual basis. In contrast average food inflation in the eurozone was just 1.5% on the year.

This news, coming on the heels of last week's UBS report drawing the similar conclusion that UK food inflation outstripped the other OECD countries, has added weight to the popular conception of "rip-off Britain".

just-food heard a range of industry views on the issue earlier this week at the Westminster Food and Nutrition Forum, when it was stressed that one possible answer to rising prices is a greater use of GM technology.

Significantly for retailers, the statistics have added to mounting public concern that supermarkets are taking advantage of rising global food and commodity prices to add a few percentage points to their food margins. Indeed, UBS analysts confirm that food inflation has "significantly outstripped food retailers' cost inflation" and warned that such behaviour could result in a government inquiry. Meanwhile, HSBC analyst Karen Ward went so far as to warn that the UK is not immune to the kind of food riots seen in other parts of the world.

"Even in the developed world I think we have very, very low wage growth, so people aren't getting more in their pay packet to compensate them for food and energy, and I think we could see social unrest certainly in parts of the developed world and the UK as well," she told Sky News yesterday.

The retailers are - perhaps unsurprisingly - telling quite a different tale. In a statement released today, the British Retail Consortium claimed that food inflation had actually stabilised, rising by 4.5% in February but down from January's level of 4.6%. "The small fall compared with January shows retailers are doing everything they can to keep price rises to a minimum. This is demonstrated by the record proportion of groceries on promotion or discount, currently 39%," Stephen Robertson, director general of the BRC, insisted.

Groups representing the supermarket sector have highlighted a swathe of issues - from rising transportation costs to sky-rocketing commodity prices - to explain why prices are increasing so steeply. Significantly, according to DEFRA, the UK imports about 41% of its food, meaning that prices are greatly impacted by fluctuations on the currency markets.

While all these factors add to the pressure on retailers to increase prices, it seems likely that these explanations alone will not be enough to pour oil on troubled waters. The sector could be in for a bumpy ride as an increasingly cynical public is forced to tolerate high food price inflation.


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