Press Release
Food price inflation increases
4 December 2012
- Overall shop price inflation was unchanged at 1.5% in November.
- Food inflation accelerated to 4.6% in November from 4.0% in October.
- Non-food prices fell 0.3% in November after being broadly flat in October.
Stephen Robertson, British Retail Consortium Director General, said:
“The overall shop price inflation rate is the same as October's but food price rises are accelerating. Costs for commodities such as wheat and corn have eased off since peaking earlier in the year but these pressures, coupled with the impact of poor harvests, are continuing to filter through to fresh foods, with meat, fish and vegetables hit particularly hard.
"This needn't mean that turkey or trimmings are off the menu this Christmas. The fierce competition to secure Christmas spending should shield customers from the full impact of rising costs and ensure that they still get a good deal on seasonal fare.
“Non-food prices have been down year-on-year for nine months of 2012, with November's downward trend driven mainly by clothing and electrical goods. This should help many people's Christmas present budgets go further, but it will also eat into retailers' margins during this crucial trading period.”
Mike Watkins, Senior Manager, Retailer Services, Nielsen said: “With Christmas trading underway, non-food retailers are already discounting in order to drive footfall and supermarket retailers will be concerned about the inflationary pressures that are building, and whether this impacts the motivation of the already cautious consumer. With weak consumer spending, all retailers will now be reviewing how much more to use promotional activity to encourage shoppers to buy over the next three weeks.”
Detailed Analysis
|
Overall SPI |
Food |
Non-food |
||||
|
% Change |
On last year |
On last month |
On last year |
On last month |
On last year |
On last month |
|
November |
1.5 |
0.0 |
4.6 |
0.5 |
-0.3 |
-0.3 |
|
October |
1.5 |
0.2 |
4.0 |
0.4 |
0.0 |
0.0 |
Non-food prices have now been deflationary for nine of the last eleven months, slipping to a four-month low in November. This was set against a rise in food inflation, now at its highest rate since March 2012, as fresh food items, in particular, rose steeply. Notable rises came in the vegetables, fish and meat categories, all of which rose above the overall fresh food index. The latter is being impacted by a sharp rise in feed prices which are currently 74% up on a year ago, while the price of vegetables have been affected by the adverse weather conditions earlier in the year which reduced crop yields.
Poor conditions have also been reported in the UK's grain market where wholesale prices have hit a record high due to crop failure. The Home Grown Cereals Authority (HGCA) has estimated this will result in imports rising to their highest level (2.04m tonnes) for over 30 years. The HGCA have also forecast that the UK harvested 13.3m tonnes of wheat in the 2012-13 crop season, the lowest in five years. There is further concern for overall production next year as less wheat has been sown, which could see prices rise further.
The latest input price for home produced food, measured by the Producer Price Index, rose to 11.7% and has averaged 11.8% over the last five months. This suggests that retailers are facing significant pressure from their suppliers. The pass-through to ambient food prices has been slower due to a greater number of stages in the supply chain compared with fresh food items.
The Thomson Reuters/Jefferies-CRB index, a weighted commodities benchmark, has appreciated 6% over the last six months as shown in the graph below:
The table on page four highlights three commodities which have risen by double-digit annual growth: wheat (39%), soyabean (25%) and corn (13%). The United States Department for Agriculture released its latest forecasts for a number of key commodities in early November. It showed that corn production was forecast to be 10.7 billion bushels, up from October's forecast. However, yields are expected to average 122.3 bushels per acre which, if realised, will be the lowest average yield since 1995. Soyabean production fared slightly better, up four per cent on October.
Promotional activity is now in full swing in the run up to the vital Christmas trading period, with retailers offering a range of discounts, including fuel and money-off vouchers, to drive consumers into their shops. It should be noted that, like the official measure of inflation, the SPI does not take into account these promotions, so the rate of food inflation experienced by consumers is lower than the headline figures suggest.
As expected the wider measure of inflation, the Consumer Price Index (CPI), increased to 2.7% in October from 2.2% in September, a faster pace than was forecast. The uplift was driven by education costs which increased by 19.1% and the sharp rise in food prices, particularly vegetables. The announcement by five of the six biggest energy providers of their intention to raise prices by between six and eleven per cent is likely to push up on inflation in the near term. The 3 pence per litre rise in petrol prices, postponed by the Government in August, is due to come into force in January which will provide further upward pressure to the CPI. The Bank of England revised its forecast for inflation in their quarterly November Inflation Report. It now does not expect the headline rate to fall towards its 2% target until mid-2013; it had previously expected this to happen in Q1 of 2013.
The GfK Consumer Confidence Index increased unexpectedly in November to -22, eight points up on October and the highest level since May 2011. An improvement was seen in all five components of the index, notably consumers' perception of the general economic climate over the next 12 months, improving 14 points to -15. The climate for major purchases index also increased to a four-month high level of -26. This will be a boost to retailers who will be hoping the improvement in consumer sentiment continues over the Christmas and New Year trading periods.
At just 1.5% the BRC-Nielsen Shop Price Index remains below the CPI inflation measure.
Food:
|
Food |
Fresh |
Ambient |
||||
|
% Change |
On last year |
On last month |
On last year |
On last month |
On last year |
On last month |
|
November |
4.6 |
0.5 |
4.6 |
0.7 |
4.5 |
0.3 |
|
October |
4.0 |
0.4 |
3.8 |
0.4 |
4.2 |
0.5 |
In November, food inflation accelerated to 4.6% from 4.0% in October, the highest rate since March 2012.
The table below shows price changes of a number of key commodities on an annual and three-month basis:
|
Commodity |
% change year-on-year* |
% change 3-month* |
|
Brent Crude Oil |
-2% |
-2% |
|
Lean Hogs |
-7% |
12% |
|
Cattle |
5% |
0% |
|
Corn |
13% |
-5% |
|
Coffee (Arabica) |
-35% |
-8% |
|
Wheat |
39% |
0% |
|
Sugar |
-24% |
-1% |
|
Cocoa |
-1% |
-8% |
|
Soyabean |
25% |
-17% |
The acceleration in food inflation in November reflected the past rises in commodity prices which continue to work their way through the supply chain. The fresh food index provided a significant amount of upward pressure, increasing by 0.8 percentage points, while the ambient food category appreciated 0.3 percentage points. Fresh food items have fewer stages in the supply chain, therefore, we could see a greater movement in ambient food prices in the near term. The rise in the annual price of a number of key commodities continues to weigh down on the overall food index with wheat, soyabean and corn reporting double digit growth.
Retailers are continuing to shield consumers from the full impact of these inflationary pressures by absorbing the rise into their margins. The increase in promotional activity as the Christmas trading period gets into full swing will also impact profitability. The actual rate of food inflation that consumers are facing is not reflected in these numbers as they do not account for multi-buy offers and the more recent promotions around petrol.
On a month-on-month basis, prices rose 0.5% after a 0.4% rise in October.
Fresh Food
Fresh food inflation accelerated to 4.6% in November from 3.8% in October, an eight-month high. Upward pressure was exerted by the vegetables, fish and meat categories which all reported inflation above the overall fresh food rate. Meat prices have been impacted by a sharp rise in feed prices which are currently 74% up on a year ago. Feed costs represent 60% of total farm costs for poultry and 52% for pigs. Convenience food and milk, cheese and eggs also remained high. All sub-categories reported a rise in their inflation rates.
On a month-on-month basis prices rose 0.7% in October after rising 0.4% for two consecutive months. This is the largest monthly increase since May 2012.
Ambient Food
Ambient food inflation accelerated to 4.5% in November from 4.2% in October. Upward pressure was exerted by breads and cereals, non-alcoholic beverages and the category which contains sugars, jam and chocolate, all of which reported an acceleration in their inflation rates. The pass-through of the recent changes in commodity prices to the latter category has been slow due to a greater number of stages in the supply chain.
The only category to report a slight deceleration in its inflation rate was the alcoholic beverages category.
On month-on-month basis, prices increased 0.3% from 0.5% in October.
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