Vladimir Putin‘s decision to block grain exports from Ukraine is raising concerns among supermarket leaders that it could hinder the decline of food price inflation in Britain.
While signs indicate that the surging food costs are tapering off due to waning pandemic-related supply pressures and the receding impact of Russia’s invasion of Ukraine, the recent move by Russia is casting doubt on this positive trend.
According to the British Retail Consortium (BRC), food prices have risen by 11.5% in August compared to the same period last year. This marks a noticeable deceleration from July’s 13.4% and represents the lowest level since September of the previous year. Particularly, meat, potatoes, and some cooking oils have seen easing pressure, as stated by the BRC, an organization that represents retailers, including supermarkets.
However, Helen Dickinson, the Chief Executive of the BRC, warns that Russia’s decision to “pull out of the Black Sea Grain Initiative” and its interference with Ukrainian grain facilities, along with poor harvests across Europe and other regions, have the potential to halt the downward trajectory of inflation. She also noted that possible changes in business rates, such as a potential £400 million increase from next April, could jeopardize efforts to combat inflation unless government intervention occurs.
Furthermore, tax adjustments have also contributed to increasing the cost of certain beverages, adding pressure on consumers. Dickinson stated, “These [inflation] figures would have been lower still, had the Government not increased alcohol duties earlier this month.”
Additional inflationary pressures could further elevate living expenses later in the year. While initial concerns over strikes at Australian LNG export facilities have faded and contributed to the drop in natural gas prices in wholesale markets, the susceptibility of prices to sudden shocks underscores the risk facing households and businesses in the upcoming winter season.
Simultaneously, the household energy price cap in the UK has decreased, yet the removal of significant support for bill payments and an increase in the standing charge mean that slightly over a third of households will experience a rise in energy costs compared to the previous winter.
However, there is some positive news in the form of rising wages that seem to outpace price increases. Official data reveals that average earnings in June grew by 8.5% compared to the previous year, surpassing the 7.9% increase in consumer prices during the same period. This trend hints at an improvement in living standards. As inflation continues to drop, now standing at 6.8%, hopes are high for sustained growth in workers’ spending power.
Food Inflation Cools, but Russia’s Grain Withdrawal Raises Concerns
August has seen a further cooling of food inflation, according to the latest figures released today. This hints at a gradual easing of the cost-of-living pressures in the UK.
New data from the British Retail Consortium (BRC) shows that food inflation dropped to 11.6% in August, a decline from July’s 14.3%. Nevertheless, Helen Dickinson, the BRC’s Chief Executive, warns that despite the drop in inflation being a positive sign for consumers, the battle against rising food costs is far from over.
Dickinson highlighted that Russia’s withdrawal from the “Black Sea Grain Initiative” and its interference with Ukrainian grain facilities, alongside poor harvests across Europe and beyond, could serve as obstacles to achieving lower inflation.
“The Black Sea Grain Initiative,” which permitted the safe export of grain from Ukraine through the Black Sea, was exited by Russia earlier this year, impacting the availability of grain in the region. Both Russia and Ukraine are major grain exporters globally, and Russia’s ongoing involvement in the conflict with Ukraine has contributed to the upward trajectory of food prices in the UK.
Dickinson also noted that shop price inflation decreased to 6.9% in August, down from July’s 8.4%, but this reduction could have been more pronounced if the government had not raised alcohol duties earlier this month.
At the beginning of this month, alcohol duties were adjusted based on alcohol strength, leading to price increases for around 90% of wines sold in the UK. Normally, alcohol duty is revised annually to align with inflation, but over the past decade, it has been either reduced or frozen in each budget.
Dickinson added, “Across non-food categories, price growth for toiletries and cosmetics has eased due to reduced costs of key components. In contrast, inflation for clothing and footwear has risen as retailers scaled back their extensive summer sales.”
The recent announcement of a notable decline in the UK’s yearly inflation rate to 6.8% in July from June’s 7.9%, largely due to reduced energy costs, is a significant occurrence. Nevertheless, the core inflation rate, which excludes the volatile prices of food and energy, remained steady at 6.9%, the same as in June.