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Food inflation reaches two-year high

By Lorraine Heller , 08-Jun-2011

Related topics: Business, Restaurants, Hotels, Pubs & Bars

Food inflation in the UK has hit a two-year high, indicating that pricing pressures on hospitality operators are likely to continue into the near future.

Food inflation reached 4.9 per cent last month

Food inflation reached 4.9 per cent last month

New figures released today by the British Retail Consortium (BRC) indicate that food inflation reached 4.9 per cent in May 2011, up from 4.7 per cent the previous month.

The prices, pushed up by volatile commodity costs, mark a 23-month high. They come just a day after news that gas and electricity prices are due to increase, with Scottish Power saying it will hike its average gas price by 19 per cent and electricity by 10 per cent.

Hospitality pricing policies

As well as causing consumers to tighten their belts further, higher food prices are also squeezing hospitality operators who are finding it increasingly difficult to maintain profit margins in the face of higher costs, says Miles Quest, spokesperson for the British Hospitality Association.

“Food inflation will obviously impact costs which are already being squeezed. Inevitably some operators will be considering their pricing policies. This is something that has been going on for the last year or so and it is likely that this pressure will continue into the near future,” he told BigHospitality.

Eating out still important

The data released today by BRC and Nielsen found that overall shop inflation slowed to 2.3 per cent in May from 2.5 per cent in April, while non-food inflation also slowed to 0.8 per cent from 1.2 per cent the previous month.

However, food prices continue rising at high rates because of the cost of key commodities such as wheat, which was up 72 per cent on a year ago.

"Food prices have increased slightly this month but this is due to seasonal or weather related fresh foods rather than ambient foods,” said Mike Watkins, senior manager of Retailer Services at Nielsen.

“However, inflation and other rising household bills are still top of mind for shoppers so retailers are offering more promotions and deeper price cuts. This continues to be an important driver of sales for retailers and a coping strategy for shoppers but should not be seen as the long term answer to any weakening of consumer demand or falls in consumer confidence.”

Peter Backman, managing director of Horizons hospitality consultants said that higher food costs are unlikely to stop consumers from eating out, but might prompt them to modify their spending.

“The fact that gas bills are to rise by a massive 19 per cent puts further pressure on consumer’s discretionary spending," he told BigHospitality.

"But eating out has become an established habit amongst the population now so while inflationary pressures might mean customers eat out less often and perhaps spend less when they do, they are unlikely to stop eating out to any major extent.”

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