Retailers warn of tougher times ahead as costs drive up food inflation

Food inflation rose for the fourth month in a row in May, driven by higher fresh food prices and mounting costs for retailers, the latest BRC-NielsenIQ Shop Price Index has found.

The annual rate of food inflation hit 2.8% in May, up from 2.6% in April, and sits above the three-month average of 2.6%. Fresh food was the biggest contributor, rising 2.4% year on year, up from 1.8% the month prior.

While food prices ticked up, overall shop price deflation remained flat at -0.1%, unchanged from April. Non-food prices continued to fall, but the pace of deflation slowed to -1.5%, compared with -1.4% in April.

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British Retail Consortium CEO Helen Dickinson said: “While overall shop prices remain unchanged in May, food inflation rose for the fourth consecutive month.

“Fresh foods were the main driver, and red meat eaters may have noticed their steak got a little more expensive as wholesale beef prices increased. Non-food prices remained in deflation, but this slowed in categories such as fashion and furniture as retailers began to unwind heavy promotional activity. Prices were falling faster for electricals as retailers tried to encourage spending before any potential knock-on impact from U.S. tariffs.”

Dickinson also warned that retailers are being forced to absorb billions in additional costs, putting upward pressure on prices in the months ahead.

“With retailers now absorbing the additional £5bn in costs from April’s increased Employer National Insurance contributions and National Living Wage, it is no surprise that inflation is rearing its head once again. Later this year, retailers face another £2bn in costs from the new packaging tax, and there are further employment costs on the horizon from the implementation of the Employment Rights Bill.

“Government must ensure the Employment Rights Bill is fit for purpose, supporting workers’ rights while protecting jobs and investment for growth. If statutory costs continue to rise for retailers, households will have to brace themselves for more difficult times ahead as prices rise faster.”

Meanwhile, ambient food inflation eased slightly to 3.3%, down from 3.7% in April, and below its three-month average of 3.6%.

NielsenIQ head of retailer and business insight Mike Watkins added: “Whilst shoppers are seeing savings at the checkout as retailers increase promotional activity, increasing prices is still an extra challenge to consumer spending alongside rising household bills. And if consumer confidence remain weak as looks likely, then retailers may have to work harder to encourage shoppers to spend over the summer.”

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