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Analysis: Is the end of food price inflation in sight?

Is there an end in sight to these stubbornly high food prices? Many economists and analysts are expecting things to cool down soon.

The UN’s food price index is down about 20% from a record set a year ago and further declines are expected. Analysts at Bloomberg Intelligence expect the UN gauge, a measure of internationally traded commodities, to slide further in the second half of the year.

The same analysts and economists are deploying all sorts of tools to gauge how that translates into shopper bills.

For example, Bloomberg Economics has used methods similar to those applied by the European Central Bank to track changes in producers’ costs and gauge what’s coming down the prices pipeline for food and consumer goods in the euro-area.

Its analysis shows the pass-through from factory gate prices to what consumers pay in shops is pretty much one-for-one and takes approximately six quarters. Slower rises in factory gate prices in February and March suggest the decline in input costs is starting to feed through.

Given transmission lags, this suggests that monthly rises in consumer prices for food and goods will stay strong, but keep declining through the year, helping to gradually lower inflation.

Mintec, a price-reporting agency whose clients include some of the biggest food companies, is now deploying algorithms to better forecast future costs. Prices of most food commodities will be falling, mainly driven by macroeconomic factors such as GDP growth, the rate of new orders and business inventory levels, according to Lasse Hvid-Jørgensen, director of forecasting operations.

“This general trend of price decreases will continue until the start of 2024 in many food commodities, but with brief interruptions by minor price increases over the summer,” he said by email.

Supermarket shelves may also be cooling down. As Bloomberg Opinion’s Andrea Felsted argues, if history is anything to go by, it won’t be long before some of the food cost is “competed away” by food retailers battling it out for sales.

Several UK retailers have recently cut prices of essential items like bread, milk and butter. And as elsewhere in Europe, political pressure is building. UK lawmakers are probing supermarkets’ price power, while the Competition and Markets Authority is looking at whether retailers are ratcheting up the price of fuel and food more than warranted.

That’s not to say the cost-of-living crisis will end anytime soon. Bank of England Governor Andrew Bailey warned that higher food prices and a tight labor market could cause the crunch to persist. Food price inflation was still extremely high and while producers expect costs to moderate, there was uncertainty around how long it would take for this to feed through into consumer prices, he said.


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