Food and drink price inflation falls again this month

"It's encouraging to see food and drink price inflation fall again this month to 13.6%. However, it remains at historically high levels and our industry is very conscious of the pressure this is putting on household budgets.

"The reason inflation has not yet fallen further is because the costs of food production remain high, including ingredients, energy, transport and labour. While commodity prices are generally falling, they remain 22% higher than they were pre-pandemic, with persistent inflation in some, like sugar and olive oil.

"Food and drink manufacturers continue to do all they can to keep prices down for consumers while paying a fair price to their suppliers. The pressure on businesses in our sector is very visible in the high rate of insolvencies in the first half of 2023, which were 132% higher than during the whole of 2019.

"It's vital that governments across the UK continue to work with our sector to ensure food and drink price inflation continues to fall, including by reducing unnecessary regulatory burdens. In particular, cumbersome new 'not for EU' labelling plans under the Windsor Framework need a pragmatic alternative if we're to avoid significant, unnecessary costs being placed on already stretched businesses."

Notes

1. Food inflation was 14.9% in July and was 19.2% when it was at its peak in March.
2. Although commodity prices have been falling, compared to February 2020, August prices were 22% higher, showing that while many costs have started to decline, they remain significantly above pre-pandemic levels.
3. The industry continues to struggle with significant labour shortages. Industry's vacancy rate (the number of vacancies per 100 employees) eased in Q2 to 4.8% from 5.9% in Q1, but labour shortages remain higher than those in wider manufacturing and the UK, of 2.9% and 3.3% respectively. See: State of industry report Q2 2022
4. High vacancy rates mean that manufacturers were forced to produce less, with repercussions on current revenues and future developments. We estimate that during the year to June (Q3 2022 - Q2 2023), output lost due to labour shortages is £1.4bn, while the loss for Q2 2023 alone is assessed at £192m.
5. Insolvencies continue to rise at a faster pace than in the wider manufacturing sector for GB. In the first half of the year, the industry recorded 161 insolvencies compared to 122 in the whole of 2019. That is 132% more insolvencies in the first half of the year compared to the whole of 2019, above 70% more insolvencies than wider manufacturing or Great Britain
6. Fresh inflationary pressures are on the horizon. The heat wave in Southern Europe means lower fresh food availability, while the El Niño and the collapse of the Black Sea Grain Initiative could impact global grain crop production.

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