Blog: Dean BestWeather-hit harvests could reignite inflation

Dean Best | 17 July 2012

Prices of food and soft drinks in the UK increased at their slowest rate for two years in June, official figures said today (17 July). But beware: weather events on both sides of the Atlantic could accelerate inflation once more.

Food and non-alcoholic beverage prices grew 2.3% in June, down from 3.3% in May and at the lowest level since June 2010, when inflation in the two categories was 1.9%.

Almost all food categories contributed to the fall in the prices of food and soft drinks between May and June, the data showed.

"With the exception of fruit and vegetables, all food types contributed to the downward pressure. The biggest contribution came from meat, where there have been reports of the recent weather hampering demand," the Office for National Statistics said.

Inflation has put pressure on sales volumes in the grocery sector and manufacturers and retailers will welcome signs of an ease in the inflation rate.

However, the recent wet weather in the UK - the period between April and June was the wettest on record - is already showing signs of affecting yields and inflation could pick up again later in 2012.


Speaking to just-food at the Great Yorkshire Show in the UK last week, Steve McClean, head of agriculture & fisheries for retailer Marks and Spencer, told just-food the agricultural industry is starting to notice the effects of the poor weather conditions.

"We are starting to see some fairly major effects to the various supply chains and that's not just about crops that are grown but crops that are grown as animal feeds too and there'll be an impact through the back end and winter. It's going to affect everybody and will have an impact on prices," he said.


And over the US, what has been described as "extreme" dryness and heat in June and July in key corn-producing areas has hit yields.


More than 1,000 counties across in 26 states are to be designated as disaster areas due to the drought, the worst in the US since 1988.

Last week, the US Department of Agriculture lowered its forecasts for domestic corn and soybean production.

"We have increasing concern that the pressure on Food prices through Q3 and Q4 may be on the upside," analysts at Shore Capital wrote today.



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