The rising cost of food will overtake the price of energy as the driving force behind inflation over the summer, hitting poorer households the hardest, a leading thinktank has forecast.
Grocery bills that had rocketed by almost 20% during the past year would continue to increase, replacing energy prices that were expected to begin falling over the next few months, the Resolution Foundation said.
The thinktank said it was not clear that politicians were prepared for another year of food price rises or that “policy debates have caught up with the scale of what is going on”.
Official figures released next Wednesday are predicted to show that the annual rate of inflation fell in April by about two percentage points from the 10.1% figure for March.
The drop to single digits will be a relief for households and businesses that have come under intense financial pressure from rising prices. However, the pace of decline is expected to slow as firms push up the price of food.
The Bank of England warned last week when it increased interest rates to 4.5% that it was concerned that inflation as measured by the consumer prices index (CPI) would fall more slowly this year than it previously expected.
It raised its inflation forecast for the fourth quarter of 2023 from 3.25% to more than 5%, warning that it might need to raise interest rates further to pull the CPI rate down towards its 2% target.
The Bank’s governor, Andrew Bailey, told business leaders on Wednesday he was concerned that food and other non-energy prices would remain elevated, eating into the disposable incomes of millions of households.
Food prices usually fall in the summer as UK crops replace more expensive imports. But factory gate prices for milk, meat and other foods has accelerated, in some cases by more than 50% year on year.
The Resolution Foundation’s report, Food for Thought, says food prices are expected to contribute “more to overall inflation than energy” in the months ahead.
“Between March and September 2023, food prices are expected to contribute around 2 percentage points to inflation each month, while the contribution of energy prices is set to fall from 3 percentage points to less than 1,” the report estimates.
The cost to the nation from higher food prices since the 2019-20 financial year would be £28bn by the end of the summer, compared with an extra £25bn cost from higher energy prices, it added.
Lalitha Try, one of the report’s authors, said: “Everyone realises food prices are rising but it’s less clear that the scale of the increases has been understood in Westminster.”
She added: “What rising food prices have in common with surging energy bills is that they pose a greater challenge to lower-income households, who spend a higher proportion of their income on food – 15%, compared with 10% for the highest-income households in 2019-20.
“As a result, the effective inflation rate for the poorest 10th of households was almost 50% higher compared with the richest 10th of households in March.”
