The research from the latest edition of the CGA Prestige Foodservice Price Index will come as welcome news for operators, who have been combating high levels of inflation since the EU referendum in June 2016 and the subsequent weakening of sterling.
Inflation halved from 5.1% in December 2017 to 2.5% in January this year, before falling again to 0.5% in February.
The figure rose month on month to 1.8% in March but still below the rate of inflation as measured by the Consumer Price Index.
The drop in inflation has been driven by the increased supply of several key materials including sugar, where a global surplus led inflation to fall dramatically. Meat and dairy were among the other categories where inflation fell in March.
Sugar tax
In recent months, the value of sterling has stabilised against the Euro and improved against the dollar, helping to ease pressures on the price of imported items. Increased certainty over the UK’s exit from the EU has also restored more confidence to the sector.
Soft drinks saw relatively high inflation in March, where the introduction of the Government’s ‘sugar tax’ has created uncertainty about producers’ costs and consumers’ spending.
The latest findings from the index create optimism for the sector that inflation may continue at reasonably low levels as 2018 moves on, especially if weather conditions are favourable over the coming months.
However, Brexit and the threat of US-led tariff wars between major countries are among several reasons for caution over the next few months.
Prestige Purchasing chief executive Shaun Allen said: “It is encouraging to see that inflation levels in the sector have remained at a lower level in the first quarter of 2018, providing some stability to operators.
“However, some very high levels of inflation remain within categories such as oils and fats, drinks, and fruit."
Price volatility
He added: “As we enter into an important period of food production, good weather conditions in major growing regions will be fundamental to keeping inflation at a low level.”
The months ahead will be a mixed bag when it comes to food prices, according to CGA client director of food Fiona Speakman.
She said: “Although foodservice price inflation rose month on month, the figure of 1.8% is significantly below rates measured by our index through most of 2017.
“It suggests the modest inflation of early 2018 is not just a blip but a welcome return to stability after the price volatility that was triggered by the EU referendum.
“Positive signs on the supply of some items will add to the sector’s confidenc,e but exchange rates, tariffs and the weather are among the many issues that mean businesses will have to keep on their toes in purchasing and pricing this year.”