Foodservice Price Inflation sitting at 1.8%

Jan 17th 2017

Price inflation on food and non-alcoholic drinks, as measured by FPI, sits at 1.8% for December. When we compare this to the equivalent inflation figure of -1.1% from CPI, it quickly becomes obvious that foodservice is having to cope with price increases that the general public are not, or at least, are not yet.

These year-on-year inflation figures are only part of the story.  As you can see in our graph above, which shows the price index figures themselves, foodservice pricing has moved very differently compared to retail pricing – having briefly reached the same point around February 2016, the two diverge rapidly as the months go on.  As we’ve stated before, this is due to CPI figures being tied to supermarket prices, where fierce competition between big name stores and their huge negotiating power mean increases in price are suppressed wherever possible.

Looking at FPI, prices are actually down this month, which is in line with the typical movement from November to December - weaker exchange rates, which would normally put upward pressure on price, are balanced out in December by increased sales of goods targeted specifically at the Christmas period and festive discounting.  

This is especially noticeable in categories such as meat (currently -0.6% year on year) where, for example, turkeys are targeted at this time of year for Christmas dinners.  The fact that pricing for other meats is either holding or rising ends up being drowned out by this seasonal purchasing.

In ambient and hot beverages, prices have also moved up, both compared to last month and year-on-year, which is not surprising: one of the main components of this category, coffee, continues to go up in price, fuelled by declining harvests of the Robusta variety pushing up prices, as well as steadily increasing demand (which already outstrips available and projected supply).  Poor weather also takes its toll, as droughts in Kenya, the biggest exporter of black tea, threaten supplies going forward.

In both fruit and vegetables, the effect of Brexit uncertainty is very noticeable, especially in fruit, where a much higher proportion of what the UK consumes is imported, and therefore affected by the weakening of the pound.  Recent news across Europe about unexpected cold weather impacting fruit and vegetable crops, especially from Italy and Spain, signal that prices are likely to remain high until domestic production reduces reliance on imports.  Again, fruit is less likely to see price reductions, due to limited domestic production.

2017 looks to be a very unsettled year in general, with the opening of Brexit negotiations likely to lead to continued volatility in the value of Sterling, the effects of weather on fruit and vegetables and more general political uncertainty potentially affecting trade across the globe.