Inflation begins to ease but price rises keep things static, price index reveals

Industry
11/06/2019 - 09:25
Year on year foodservice inflation fell back in April from March, but price rises on hot and soft drinks have kept the total basket of goods static month on month, the Foodservice Price Index from Prestige Purchasing and CGA has revealed.

It found that soft drinks saw high levels of inflation, following reduced demand for high-sugar drinks in the wake of the government’s sugar tax, and increased costs from investment in more environmentally friendly packaging after widespread scrutiny of single-use plastics.

The extra costs to manufacturers of reformulating soft drinks to contain less sugar, and of developing healthier and high-quality drinks in response to public demand, are also resulting in higher prices.

Inflation has also risen in the hot drinks category of the Index, due to tea production issues caused by drought conditions in regions including Kenya and India.

With yields hampered, and the costs of materials (including those used to make tea bags) increasing, prices can be expected to continue rising.

Prices in the Fish category have eased after April’s ‘historic’ peak thanks to the Easter holiday.  But the global salmon market may see some uplift in the next few months from two issues: a possible plummeting of Norwegian salmon yields after an algal bloom hit stocks; and an investigation into overuse of chemicals by producer Mowi, which may cause damage to Scottish Lochs.

Shaun Allen, chief executive of Prestige Purchasing, said: “It is encouraging to see that the overall inflation in foodservice is slowly starting to ease and good weather conditions over the coming months should help further as we move into the UK summer season for fruit and vegetables.

“However, there are several categories that remain vulnerable to seeing further upward pressure on prices, most notably in meat and fish where disease is affecting stocks, such as pork continuing to be heavily impacted by African Swine Fever and salmon now under threat from an outbreak of an algal bloom. It will be critical that operators actively manage these risks.”

The milk, cheese, and eggs category witnessed high year-on-year inflation in April—an effect of high milk production in early 2018 keeping prices in 2018.

But with milk production hitting a new three-year high in April 2019, the Index is likely to fall in coming months as cheaper milk hits the market.

Fiona Speakman, CGA client director of food, added: “The modest easing of year on year inflation from recent peaks is welcome news for the foodservice sector—but inflation remains stubbornly high month-on-month. Pressure is particularly heavy in the Soft Drinks category, where CGA research has revealed a notable upswing in demand for low-calorie options in the year since the introduction of the government’s sugar tax—and as more consumers move towards healthier drinking and eating, we see this trend continuing.

With Brexit and tariff issues adding to uncertainty at a macro level, businesses will need to stay right on top of both supply issues and consumer trends as we move into the second half of 2019.”

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