Food price inflation predicted to be zero for 2016

17 December 2015

Inflation for food prices is forecast to be zero per cent in 2016, marking the second consecutive year of deflation, according to the annual Food Inflation Report.

The report also predicted deflation for alcoholic drink prices at -1 per cent for next year, but soft drink prices will return to inflation with a 0.5 per cent increase in 2016, based on analysis of the Consumer Price Index.

However, lower prices have not been passed on from suppliers to caterers, according to a new price index created by the report’s authors, Prestige Purchasing and CGA Strategy – the Foodservice Price Index (FPI), which uses a larger basket of goods than the CPI and utilises over 100 million lines of data.

The level of deflation in food prices identified by the CPI for 2015 is -3.1 per cent, yet wholesale food prices for caterers have only reduced by 1 per cent, according to the FPI.

“This 2 per cent gap [sic] needs to be looked at in perspective,” the report said. “Over the past three years a buoyant supermarket sector making very acceptable margins has been exposed to a significant growth in new entrants (notably in the discounter sector), and a move away from big weekly shopping trips to online and convenience purchases.”

As a result, groups like Tesco and Morrison have been put under pressure to cut prices to stimulate demand in their large and relatively expensive store assets, according to the report. No such pressure has existed in food service supply markets.

In addition, the strengthening pound, the Russian ban on EU food products and falling oil prices have put downward pressure on prices.

The largest price movements by food and drink category in 2015 have been in fish (5.9 per cent up) and dairy (4.7 per cent down), with notable movements downward in meat and oils and fats.

“The outlook for food inflation in the year ahead is likely to be relatively benign,” said David Read, chief executive of Prestige Purchasing.

“However, operators should remain cautious of the significant risks present, which might change the picture dramatically. For example, it’s quite possible that the planned EU referendum could be held during 2016, which, if negative on EU membership, could trigger substantial movement in exchange rates, with a resultant impact on food prices.

“Operators would do well to ensure that they are kept informed and work hard to seek out any signals that could radically alter future prices”.

Food price changes by category for 2015 (FPI year-on-year percentage change):

Bread and cereals: -0.8
Meat: -2.3
Fish: +5.9
Milk, cheese and eggs: -4.7
Oils and fats: -3.7
Fruit: +1.0
Vegetables, including potatoes: +0.3
Sugar, jam, syrups, chocolate and confectionery: -0.2
Misc food products: -0.7
Coffee, tea and cocoa: -0.3
Mineral waters, soft drinks and juices: -0.3

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