Figures from the British Retail Consortium (BRC), the UK’s trade association for stores, show that food price inflation is now running at a rate of 2.8% per year. This follows an increase of 2.8% in April.
Helen Dickinson, chief executive of the BRC, said fresh foods were the main driver of the inflation, which has now continued for four consecutive months, and blamed added Government costs for increasing prices.
“Red meat eaters may have noticed their steak got a little more expensive as wholesale beef prices increased.
“With retailers now absorbing the additional £5bn in costs from April’s increased Employer National Insurance contributions and National Living Wage, it is no surprise that inflation is rearing its head once again,” she added.
Deflation elsewhere
While food prices continued an upward trajectory, the price of non-food items fell, with the prices of electricals falling particularly fast as retailers tried to encourage spending before any potential knock-on impact from US tariffs.
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As a result, shop prices as a whole fell slightly, with price deflation running at 0.1% in May, unchanged from April. The price of non-food items decreased in the period, with a deflation rate of 1.5% year-on-year, up from 1.4% in April.
Dickinson added that retailers would face further costs later this year, potentially driving prices up further.
“Retailers face another £2bn in costs from the new packaging tax, and there are further employment costs on the horizon from the implementation of the Employment Rights Bill.
“If statutory costs continue to rise for retailers, households will have to brace themselves for more difficult times ahead as prices rise faster,” she said.
Fresh food takes a hit
While the cost of fresh items rose, the cost of ambient food such as snacks and tinned products fell, with deflation at 3.3%.
Mike Watkins, head of retailer and business insight at retail consultancy NielsenIQ, said this was partly due to increased promotional activity from retailers, who are trying to tempt hard-pressed shoppers to spend.
“Whilst shoppers are seeing savings at the checkout as retailers increase promotional activity, increasing prices is still an extra challenge to consumer spending alongside rising household bills.
“And if consumer confidence remain[s] weak, as looks likely, then retailers may have to work harder to encourage shoppers to spend over the summer,” he added.
Susannah Streeter, head of markets at DIY investment group Hargreaves Lansdown, said supermarkets could only increase prices so much, despite the pressures on them from higher payroll costs.
“Given the highly competitive supermarket sector, and the pressure to keep shoppers loyal, sharp increases may only be limited to certain ranges,” she said.
