The price of everything has rocketed since the start of 2021, with the consumer price index rate of inflation peaking at 11.1 per cent in October 2022. It is well above the Bank of England’s 2 per cent target.
Food price inflation has been the primary driver of inflation remaining so high. Price rises for staple groceries such as cheese and eggs has eased slightly, due to falling inflation rates, but costs at the checkout will still be higher than last year. ONS figures show the inflation rate for groceries and non-alcoholic beverages eased to 10.1 per cent in October, the lowest level this year, much lower than the 19.2 per cent in March, but still the highest annual rate seen in 45 years.
Why have food costs risen so quickly?
While some households may have been shielded from some price rises, most of us have noticed the price of our weekly shop increase over the past few years.
There are a number of factors that have played a significant role in the ever rising food costs with the two major factors being:
Higher labour costs
Minimum wage has increased drastically from £6.70 in 2015 to £10.42, and it is set to increase a further 9 per cent to £11.44 in April 2024.
Russia-Ukraine conflict
Both countries are major players in commodity markets, the subsequent rise in costs of natural gas, phosphates and cereals has lead to higher energy bills which has forced producers to hike their prices. Fossil fuel prices determine the cost of food as they influence costs at all stages of food production and distribution, oil matters for transportation; natural gas prices raise, for example, the price of refrigeration and fertiliser prices increase costs for farmers.
When will food prices start to fall?
The simple answer is that prices across the board will most likely never fall, almost certainly not by very much.
The price groceries are up year on year; the cost of olive oil has increased 50% from an average price of £4.77 in 2022 to a whopping £7.16 in 2023, bananas increased by 22 per cent from £0.94 per kg in November 2022 to £1.14 per kg in November 2023 and the cost of a dozen eggs grew by 17 per cent from £2.85 in November 2022 to £3.34 in November 2023. Inflation at this rate simply isn’t sustainable.
An end to the Russia-Ukraine conflict could relieve pressure on prices but even then the upward price pressure on food could still continue. Many commodities are traded under contract, and food prices would not necessarily fall as quickly as world commodity prices.It takes up to a year for input cost rises to filter through to final prices on shop shelves and manufacturers have now seen costs climbing for over two years.
Wage increases will also mean consumers feel the pinch less too. Pay, excluding bonuses, increased by an average of 7.8% in May to July 2023 compared with a year earlier. This matched the pace of inflation over the same period. But we have to factor in that pay increases also translate to higher production and transportation costs.
For prices in the UK to fall, inflation would need to go into negative figures (deflation), this is extremely rare for the economy, the last time it happened was in 2015 when prices fell by a staggering 0.1%. The cost of living crisis will come to an end eventually. Prices will stabilise and grow at a slower rate, The Bank of England predicts that inflation will be back to “normal levels” by the end of 2025. But it doesn’t mean the cost of those essentials will come down. They’ll only keep on rising.
