Food retail prices stubbornly resist the recession

In the year to March, food prices in the UK rose 1.2 per cent year-on-year, according to the British Retail Consortium (BRC)-Nielsen Shop Price Index.

This is the lowest inflation level for three years but in the context of declining demand, global recession, and the record price highs of previous years, it is, on the face of it, surprising that deflation is not on the radar.

Shore Capital analyst Clive Black said: “Against especially challenging comparatives we repeat a previously made point by us that the fact that there is inflation in the system at all remains somewhat remarkable.”​

Commodity markets ​

One factor that put upward pressure on prices was the return of VAT to 17.5 per cent on 1 January 2010. But Black told FoodNavigator.com that the resilience of food prices is mainly testament to the “firmness”​ of the commodity markets.

Thomas Reuters Jefferies CRB data on global commodity prices reveals an increase of around 30 per cent in 2009. Black said much of this comes from the recovery of the oil price, rather than the food commodity market as coffee, wheat, corn prices are all down on 2008.

But the net effect of commodity price changes is upward pressure on food retail prices as fuel prices and packaging material costs increase.

The analyst said a similar picture is seen in continental Europe where similar global forces are at play. But he said Northern Europe is looking much stronger than Southern Europe as the Club Med countries take the biggest hit from the recession.

Looking ahead, oil prices continue to creep up, and have just moved outside the $70-85 per barrel range. This is likely to put upward pressure on prices and imply some margin absorption by manufacturers and even retailers.