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20 May, 2023 05:30

UK warned about food inflation shock

Rising food prices will be a bigger shock than energy costs, the Resolution Foundation said
UK warned about food inflation shock

Rising food prices will soon overtake energy costs as the main force fueling inflation in the UK, an independent think tank warned in a report on Friday.

Food makes up a far larger share of the typical household’s consumption than energy, says the Resolution Foundation, whose aim is to improve living standards for those on low to middle incomes.

As grocery prices will remain at a high level while energy costs decline, this summer “food costs will have overtaken energy bills in the scale of the shock they are administering to family finances,” the think tank predicted.

Grocery bills have jumped by almost 20% during the past year, official figures for March showed, with the overall consumer price index standing at 10.1%. Energy prices peaked at record levels last year but have since declined significantly.

Apart from energy, food-cost increases in the UK have been attributed to factors such as supply-chain disruptions caused by the conflict in Ukraine, Brexit-related trade barriers, rising labor costs, and bad weather.

These and other factors mean that factory gate prices, and the resulting retail prices for consumers, could continue to rise into the summer, the think tank warned. “It’s far from clear that political and policy debates have caught up to the scale of what is going on,” the report added.

The Bank of England expects inflation to “fall quickly” this year as a result of hikes to its key interest rate, which is now at 4.5%, and the fall in wholesale energy prices. The regulator’s target inflation is 2%. The annual inflation rate for the UK is expected to be 6.1% this year.

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