Foodservice price inflation drops to pre-referendum levels

The vote to leave the EU in June 2016 triggered an immediate weakening of the pound and a sharp spike in foodservice prices, especially on imported items.

Price inflation has been running at relatively high levels ever since but halved from 5.1% in December last year to 2.5% in January 2018.

It has now reduced again to just above zero – an inflation level not recorded by the Foodservice Price Index data since the month of the referendum, and well below the rate of inflation recorded by the Consumer Price Index, which currently stands at 3%.

The downward trend has been driven by the easing of pressure in several food and drink categories and by improved confidence around the UK’s transitional arrangements for its departure from the EU.

Categories seeing a fall in prices include fish – where inflation dropped from 9.8% in December to 4.2% in February.

Soft drinks levy

Inflation also fell in the dairy category to 2.5% this month, largely thanks to falling farm-gate milk prices.

However, prices remain high in other categories including oils and fats, where soybean supply issues contributed to pushing inflation up to 16.5% in February.

The Government’s plan to introduce a soft drinks levy in April encouraged prior adjustments in retail prices and drink formulas, helping drive inflation in the soft drinks category up to 6.8%.

The Foodservice Price Index suggested there were grounds for optimism that inflationary pressures may continue to ease in the coming months.

But it also warns that prices remain vulnerable to supply issues, currency fluctuations and wider economic factors, including the potential for a tariff-driven war between the US and China.

Prestige Purchasing chief executive Shaun Allen said: “This month’s Foodservice Price Index inflation figure of 0.5% continues the positive downward movement we have seen over the past few months and will give some much needed respite for the foodservice industry."

Volatility level

He added: “However, while the overall inflationary pressure continues to ease, we also recognise a significant level of volatility remains within the individual food and drink categories.

“This volatility demonstrates that a number of supply markets remain fragile and vulnerable to sudden movements from events that can result in sharp inflationary and deflationary swings.”

While the fall in inflation is good, operators need to remain vigilant to any price pressure, according to CGA food client director Fiona Speakman.

She said: “Foodservice price inflation of just 0.5% in February 2018 is welcome news after prolonged turbulence.

“Our Foodservice Price Index gives reasonable cause for optimism that we might now be entering a sustained period of lower inflation, and with Brexit arrangements becoming clearer and the ‘sugar tax’ now established, we can be hopeful the worst of recent volatility is behind us.

“But businesses need to remain vigilant to any fresh pressures on prices, and stay right on top of their purchasing and pricing strategies.”