Food inflation to stay flat in 2016

Food inflation will stay around zero in 2016 following a second successive year of deflation in 2015, the annual report from Prestige Purchasing with CGA Strategy concludes.

It predicts that soft drinks will return to inflation at 0.5% next year, while alcoholic drinks will fall 1.0%—with food in between at 0%. It follows a year in which the foodservice sector saw inflation of -1.0%—though this was slower than the figure of -3.1% for food overall, prompted in large part by discount and online retailers. The strength of the pound and falling oil places have also contributed to deflation. 

The Foodservice Price Index, developed with the help of CGA Strategy, measured notable deflation in milk, cheese and eggs (-4.7%), meat (-2.3%) and bread and cereals (0.8%), but inflation in fish (5.9%) and fruit (1.0%).

Prestige Purchasing chief executive David Read said: “The arrival of new competition for supermarkets in the form of discounters, coupled with new routes to market from online and convenience stores, has put footfall for large out of town stores under pressure. The supermarket’s relative dependence on these assets has forced them to be more aggressive on price to drive volume. This has contributed to increased downward pressure on the inflation rate for retail food prices. However, the foodservice market hasn’t been exposed to the same market dynamics, and this has lead to a widening gap between foodservice prices and retail prices.”

2016 was likely to bring steady prices, Read added—though impacts of the referendum on Britain’s membership of the European Union might prove to be significant. “The outlook for food inflation in the year ahead is likely to be relatively benign. However, operators should remain cautious of the significant risks present, which might change the picture dramatically.”

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