As in previous months, the highest inflation numbers in October were in the Fish and Oils & Fats categories. Inflation has increased month on month since August, and the figure is now at its highest since September 2017. With significant year on year movements in Index categories including Vegetables, Dairy and Soft Drinks, the latest rise in inflation is a sign that the effects of the harsh summer weather are still affecting prices—a trend we can expect to see continuing into the new year.
The Vegetables category saw a rapid rise in inflation in October as a result of the hot and dry summer weather, which has reduced crop yields in some key product areas including potatoes and has begun to affect the market through shortages. Supply challenges in this category look set to continue into 2019, and we expect inflation in this category to remain under pressure in the short term at least.
Mild weather conditions this autumn have led to reports of improvements in grass growth, and milk production has surpassed expectations. October saw the largest drop in milk market prices since January, declining by 1.5 pence per litre (PPL) on September. Recent high milk prices have shifted demand from manufacturers, who seek to maximise their profit margins through alternative products like cheese.
In the Soft Drinks category, inflation has risen by over 9% year on year. HMRC has recently published data relating to liabilities from the soft drinks industry levy and is now in discussions over enacting fresh bans on energy drinks. Demand in the global soft drinks market is growing, concurrent with FPI movements, but while the industry is booming, we expect to see inflation here decreasing as time goes on.
The Breads and Cereals category has seen a downward movement month on month but is still up against the same time last year. Following poor growing conditions globally this year, we would have expected to see inflation continue to rise, but the monthly downturn is a result of increased Russian exporting, following fears over the imposition of trade tariffs. We expect to see Breads and Cereals inflation rise early next year, as stock to use ratios are at their lowest for over 20 years.
Shaun Allen, Chief Executive of Prestige Purchasing, said: “The poor weather conditions we have experienced this year have continued to put upward pressure on pricing in a number of food categories, and this month has seen the highest level of inflation in foodservice for more than a year. This will be unwelcome news for operators as we head into the key Christmas trading period, and with the outcome of Brexit still very much undetermined it is critical that businesses take a proactive approach to managing the future risks of inflation.”
Fiona Speakman, CGA Client Director for Food, said: “The foodservice sector has been challenged by relatively high levels of inflation throughout 2018, and as the year draws to a close the upward trend shows no sign of abating. Weather patterns have worked against the supply chain, and micro factors like the soft drinks industry level and trade tariffs have made conditions even tougher. Businesses will be hoping for a more stable 2019, but the ongoing effects of the weather on production coupled with the shadow of Brexit means further uncertainty is more likely.”
The exclusive Foodservice Price Index is jointly produced by CGA and Prestige Purchasing, using foodservice data drawn from 7.8m transactions per month. It contains myriad insights and information pertinent to the foodservice sector and is essential reading for anyone seeking to keep ahead of price trends and understand why they occur. More information on specific categories is available on a subscription basis. https://www.prestige-purchasing.com/services/foodservice-price- index-fpi