Blog: Dean BestFood inflation fears overplayed, says Kantar

Dean Best | 10 August 2010

The drought in Russia and subsequent ban on grain exports (the latest analysis from our Moscow correspondent can be seen here) has led to fears in the UK national media about the spectre of rising food prices.

However, grocery sector analysts at Kantar Worldpanel believe those fears have been overplayed.

Kantar has told just-food that food inflation is set to double by the end of 2010 from its current level of 2% to 4% but it insists there are "several reasons why the much talked about food price apocalypse is overstated".

"Firstly, whilst commodity price increases were passed on to retail prices during previous inflationary hikes, subsequent falls have not been similarly passed on.  The opportunity was taken to restore margins and build slack into the system. Secondly, the UK grocery market remains highly competitive with increasing levels of promotion and discount which will limit the ability to pass on raw material increases in full," Kantar communications director Ed Garner says.  

"And thirdly, the pound has recently been strengthening against the US Dollar and the Euro. This should help to unwind the inflationary pressure we saw at the beginning of 2009 when the pound fell sharply and, as a result, we imported inflation."

According to Kantar data, food inflation fell to 1.2% during April and May - a "record low", the analysts say. The figure compares to the 9% food inflation we saw at the end of 2008.

And Garner says an increase to 4% could make the UK grocery sector more stable.

"While low inflation appears to be desirable for shoppers it flattens balance sheets and is problematic for future growth," Garner explains. "Buying slows with consumers waiting for prices to decrease. Injecting the 4% figure into this context creates a vision of stability, and not one of soaring food prices for consumers to panic about."


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