Food inflation is likely to have peaked, according to Barclays analysts, following huge rises seen in recent months.
Food company pricing is forecast to step down to mid-single digits by the end of 2023, compared to low double digits in the first quarter.
The benchmark of global wholesale food prices, the FAO food price index, peaked in April last year and fell for ten straight months before a bump last month, with food price inflation at almost 20% with major food categories ranging between 15% and 28%.
UK grocery prices kept rising above 17% into February and have only inched lower in the past two month, with inflation of 17.2% recorded for last month – and the third highest recorded since 2008, new data showed today.
Official UK inflation data is due on Wednesday from the Office for National Statistics.
Barclays expressed optimism that food prices have peaked, citing lower fertiliser and energy prices which should help to ease costs on UK farmers in the coming months.
“We expect pricing for the food companies to step down to mid to single digits as we exit this year, compared to low double digits at the first quarter stage,” the bank noted.
However, Barclays listed a number of catalysts which may well push prices up again, including higher wages, a potential surge in demand from China and increasingly unpredictable harvest yields due to climate change.
A longer-term concern for the UK also comes from further reliance on imports as farmers leave the sector, which Barclays predict will generate £3.5bn in 2024, compared to £6bn in 2021.
Pointing to the likes of Nestle, General Mills and Unilever PLC (LSE:ULVR), Barclays noted uncertainty around gross margins for the year ahead, which will likely determine reinvestment levels and pricing.
“As gross margins recovery we expect reinvestment levels to increase,” Barclays added, with this likely to be seen among US companies before those based in Europe.