A decision by the big four supermarkets to lift the price of bread would not typically cause much of a stir. But last week’s decision by Tesco, Sainsbury’s, Morrisons and Asda to add up to 8p to their own-label and Hovis loaves has effectively fired the starting gun on price hikes to come across many food categories over the next four months.
Food price inflation is set to return with a vengeance and it could have far-reaching implications for the grocery sector and the wider economy. Last week, Hovis manufacturer Premier Foods chief executive Robert Schofield said that the soaring price of wheat had forced it to introduce the price hike and he warned that a further rise could be on the cards.
Globally, the cost of other agricultural products is also set to soar, as world supply continues to outstrip demand. But, in the UK, a powerful combination of a shockingly wet summer for agricultural producers, fears over the isolated foot-and-mouth outbreak and soaring animal feed costs are set to further increase the price of categories including milk, vegetables, meat and other fresh products.
Spar UK managing director Jerry Marwood told Retail Week at the end of last month that it had been warned by suppliers prices would rise on milk and some fresh food categories over the coming months – and Spar is not alone.
A further problem for the UK consumer is that the price rises could herald the end of the fierce price war that is under way among the big four. Just how long these price cuts, which were launched in June, will last is unclear, but customers are likely to feel a sharp pain in their pockets before too long.
Of the big four, Tesco, with its superior scale and buying power, will probably find the approaching inflation storm easier to ride out than most – although Asda also tends to benefit during periods when price is driving the agenda. But other chains – such as Morrisons sandwiched between Tesco and Asda – could find the next four to six months more challenging.
For the wider economy, the double-edged sword of rising food inflation is that it could nudge the Bank of England’s Monetary Policy Committee towards a further hike in interest rates over the next six months, although economists are deeply divided about the direction in which they are heading.
The second half of last year marked an almost unprecedented period, when all of the big four achieved increasing like-for-like sales and rising gross margins. But rising food inflation could lead to the next four months being one of storms that lingers for longer than any UK supermarket would wish for.