Food prices are rising at their slowest rate in nearly two years, with staples such as margarine and sugar actually getting cheaper – but the reprieve for household budgets may be short-lived.
Inflation in the UK fell to 2.6% in the year to June, down from 2.8% the month before, according to the Office for National Statistics (ONS). The drop was driven largely by lower fuel and food costs, offering a welcome boost to new Prime Minister Andy Burnham and his government.
“UK inflation fell to 2.6% in June as food and fuel prices dropped, but analysts expect a rise ahead.”
Supermarket price wars have helped drive down food prices, the industry says, as retailers compete with summer deals. Food and non-alcoholic beverage inflation fell by 0.2% month-on-month, with sugar, chocolate and confectionery seeing the largest drops. Beef and veal price inflation eased sharply from 9.4% in the year to May to 5.1% in June, while edible offal – including liver, kidneys and tongue – slowed from 9.2% to 3.4%. Some items became cheaper outright: pizza and quiches fell by 6.7% over the year, and margarine dropped by 1.9%.
Fuel prices also pushed inflation down, with diesel costs falling for the first time since the start of the war in the Middle East. The ONS attributed the pump-price drop to the US and Iran agreeing to halt military operations and reopen the key Strait of Hormuz. Clothing costs fell too, thanks to summer sales with larger discounts than last year.
But analysts warn the fall is temporary. Higher energy prices in July are expected to push inflation back up, and the recent resumption of hostilities between the US and Iran has sent crude oil prices jumping again. Food inflation often has a lag of up to 13 months due to the supply chain, so any effects from the war in Iran could still feed through.
The British Retail Consortium (BRC) said lower food inflation was the result of “intense competition between supermarkets”. BRC economist Harvir Dhillon urged the government to act: “If retailers are to keep prices affordable for consumers in the long run, the Government needs to take practical steps to lower the everyday cost of doing business. Andy Burnham has taken immediate action to ease pressure on household budgets; he must now look to do the same for businesses.”
The new prime minister has pledged to make the cost of living a priority. Chancellor John Healey called the lower inflation rate “news families want to hear” but acknowledged “there is much more to do”. On Wednesday morning, the government announced that the bus fare cap in England will be brought back – a move seen as part of that effort.
For now, shoppers are seeing some relief at the checkout, but with energy costs set to rise and geopolitical tensions flaring again, the question is how long it will last.