UK Food Price Inflation Slows Despite Poor Summer

UK Food Price Inflation Slows Despite Poor Summer

LONDON (Dow Jones)--U.K. annual food price inflation eased for the fourth consecutive month in August, indicating the underlying strength of the country's grocery market, the British Retail Consortium said Monday.

Annual food price inflation slowed to 2.1% in August from a peak of 3.9% in April.

Despite poor weather plaguing U.K. farmers over the summer months, food prices fell on the month in July and August as price competition within the grocery market intensified. Food prices fell 0.5% between July and August, greater than the decline of 0.3% between June and July.

"The August results underline the strength of retail competition in the grocery market and should be a useful counterweight in some of the more alarmist forecasts of the future price rises," said Kevin Hawkins, head of the BRC.

Upward inflationary pressure from fresh fruit, vegetables and fish was kept low by unprecedented levels of promotional activity over the summer months and a limited impact from supply chain pressures, the report said.

Mike Watkins, retail services manager at Neilsen who contributed to the survey, stressed the importance of price-led strategies in restraining inflation.

"Promotions reached an all-time high over the summer, and in August almost 28% of the value of the (average) food shopping basket was still being promoted," he said.

Economic policymakers in the U.K. have been concerned that the impact of severe flooding in the U.K. this summer could eventually feed through to higher inflation. That this inflationary pressure has so far been muted could lead to lower-than-expected overall inflation this autumn.

Inflationary pressure from foods, such as pickles, peanut butter and ketchup, or so-called ambient foods, has been kept low through feverish promotional activity, the report said.

But downward pressure on prices is also coming from alcoholic and non-alcoholic drinks alongside convenience foods and snacks, soups and some tinned produce.

But the report also warned that inflationary pressure from grocery supply chains is yet to fully affect consumer prices.

Poor harvests in key wheat, grain and barley growing countries, such as America, Australia and Canada have caused a supply shortage, resulting in the cost of wheat-related produce to rise.

"The full impact of this cost inflation within wheat hasn't been felt by the consumer yet, as promotional activity is keeping prices down," the report said.