UK food prices are expected to fall more slowly due to Russia's aggression in Ukraine and climate and weather effects, supermarkets have warned.
In recent weeks, prices of wheat and other grains have soared after Russia withdrew from a Black Sea grain deal, its defence ministry warned that ships heading to Ukrainian ports would be considered as potentially carrying military cargo, and then the army mounted large attacks on Ukrainian ports and grain storage facilities.
A negative outlook for rice and grain supplies worldwide has been mounting following the recent rice ban from India, the world’s biggest exporter of the foodstuff, together with severe dry spells in major US growing regions and recent warnings about the likelihood of a strong El Niño weather event in the second half.
Today, the British Retail Consortium (BRC) reported that while food price inflation eased in July, the industry is concerned that Moscow's attacks risk driving up supermarket prices for items such as bread and cereals.
“Russia’s withdrawal from the Black Sea Grain Initiative and subsequent targeting of Ukrainian grain facilities, as well as rice export restrictions from India are dark clouds on the horizon.
“We expect some global commodity prices to rise again as a result, and food prices will be slower to fall.”
However, commodities analysts at Citi, said there are reasons to be reassured, including a "robust row crop supply" in the Americas, the possibility that Ukraine might find alternative shipping routes, and a record wheat harvest in 2022 resulting in "hefty carryover".
The International Monetary Fund warned the collapse of the Black Sea grain export deal, which ensured safe passage for shipments, would push up prices by 15%, though global wheat prices have retreated after hitting five-month highs last week.
For July, the BRC reported 13.4% food price inflation compared with the same month a year ago, down from 14.6% in June and the lowest level since December 2022.
Fresh food inflation slowed to 14.3% from 15.7% in June and the lowest level since November 2022, while ambient food inflation decelerated to 12.3% from 13%, the lowest since February 2023.
Official food price inflation from the Office for National Statistics was 17.4% in June, down from 18.4% in May. Grocery price data from was 14.9% for the four weeks to July 9, falling from 16.5% in its June data.
Yesterday, hospitality industry data showed that inflation was still much more elevated than in supermarkets.
Prices were up 22.6% in June, according to the CGA Prestige Foodservice Price Index, not far off the record high of 22.9% from last December.
The Citi analysts said there is a "bullish risk" for grain markets "if Russian seaborne exports are hindered, especially as counteroffensives ratchet up.
"But Russia could also return to the trade deal after [the planned] meeting with Turkey in August," they added.