Overall Inflation is Expected to Drop Slightly Despite Food Price Inflation Increase



Food price inflation is expected to rise 7% by the end of the year.

Food price inflation is expected to rise 7% by the end of the year.

Inflation is expected to be reported as decreasing from 3.1 per cent to 3.0 per cent this week when the Office for National Statistics reports on August numbers. The reduction will be credited to the drop in petrol prices. A 3.0 per cent inflation rate will be the lowest level since February.

The official measure of inflation which is the consumer process index if reported at 3.0 per cent will still be above the 2.0 per cent target set by the Monetary Policy Committee. While there has been a drop in petrol, price inflation of food is in danger of rising. Economist Simon Ward, of Henderson, has previously warned that UK food inflation could rise to 7 per cent by the end of the year.

Ward said: “If food costs continue to spike, CPI inflation could reach 4pc. Such an increase would hit consumer spending and recovery prospects and could destabilise inflationary expectations.”

This summer drought and wild fires caused Russia to withhold exports of wheat. This had a big impact since Russia is one of the top three wheat exporters. Wheat prices have increased 60 per cent in the last year. The original Russian export ban had been set for December but it has now been extended by 12 months. Other countries have dealt with flooding or droughts and have lost their own crops putting higher demand upon the supply of wheat.

Because wheat is a major feed grain for livestock the cost of meat is increasing as well. Global meat prices are at the highest level in 20 years according to the British Retail Consortium (BRC). Corn is a replacement grain for feed grain as well as a source of milling grain when wheat prices are high. In the past 12 months corn prices have increased by 50 per cent.

The BRC does not believe the commodity prices will be added to the consumer at this time. A spokesperson from BRC said: “The UK grocery market is fiercely competitive and with each of the major supermarkets vying to increase market share, promotions and discounts used to drive demand will contain the full impact of global inflationary pressures.”

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