UK food inflation hits highest level in 14 years and dairy hardest hit

As milk production volumes hit a five-year low in July, dairy prices were among the biggest contributors to Britain’s double-digit food inflation rate.

Food inflation hit 12.8% year-on-year – the highest value on record since August 2008 – fueling a higher-than-expected headline consumer price index (CPI) of 10.1%, the report revealed. Office for National Statistics (ONS).

Dairy products have been particularly affected by inflation due to a combination of soaring production costs, stable demand and a long period of hot weather.

According to detailed data published by the ONS, low-fat milk (34%) and whole milk (28.1%) saw the largest annual price increases, followed closely by butter (27.1%), cheese (17.9%), yogurt (14.2%) and ice cream (12.9%); other products, including soymilk, reached 10%.

Kien Tan, Director of Retail Strategy at PwC, commented: “By far the largest contribution to today’s record CPI reading of 10.1% came from food prices, with a monthly increase of more than 2% between June and July, the highest on record. in 20 years, and surpassing the already high growth rate of last month.

“Supermarkets have had no choice but to pass on price increases from suppliers, who are themselves facing unprecedented inflation in the cost of raw materials and ingredients. This has been particularly acute in labor-intensive and utility categories like dairy, with reports that the price of a pint of milk has more than doubled in some stores since the start of the year.

Other food products whose prices soared were flour (29.7%), pasta (24.4%), olive oil (23.6%) and margarine (22.5%).

Dairy inflation at a glance (annual change until July 2022, %)

Low fat milk: 34.0
Whole milk: 28.1
Butter: 27.1
Milk, cheese and eggs: 19.4
Cheese and curd: 17.9
Yogurt: 14.2
Edible ice cream and ice cream: 12.9
Other dairy products (including soy milk): 10.0

The bigger picture

The price of milk is on the rise, but producers are barely keeping pace with increasingly unpredictable input costs, the Agriculture and Horticulture Development Board (AHBD) recently said in its monthly release. on the outlook for the dairy market.

The body recorded milk production in July at its lowest in five years, and daily deliveries are expected to fall between 1% and 3.8% for the 2022/23 season. The exact number will depend on the cost pressures producers will face during what is expected to be a harsh winter for all.

“We have experienced nearly a year of significant input cost inflation, exacerbated by the ongoing conflict in Ukraine,”​ explained Katherine Jack, Senior Analyst, Dairy for AHDB. “Although milk prices have increased significantly, they are at best only keeping pace with the increases. As the year progresses, we will see spending increase seasonally on the one hand, and we will potentially see a drop in demand limiting price increases on the other.

To better inform its milk production forecasts, the organization has developed four scenarios. A low-impact scenario projects yields to decline by 0.5% from current year trends due to “additional pressure on cash flow from increased food volumes purchased and to rising prices”. But a “very high impact” scenario predicts a 2% drop in yields, or 468 million litres.

Thanks to retail, milk volumes are expected to decline by 7% year-on-year for 2022; with yoghurt (-8%), cheese (-5%) and butter (-8%) volumes also down.

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