Food price inflation rises as shoppers celebrate summer of sport

Shoppers have been hit with new price rises on supermarket shelves after food price inflation rose for the first time since March 2023 during July and August.

Data from research firm Kantar shows supermarket prices rose by 1.8% in the four weeks to 4 August, up from 1.6% at the start of July, even as the main consumer prices index inflation figures has slowed.

Grocery prices are now rising across 182 product categories, as the costs in 89 others fall, according to Kantar.

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The hikes coincided with a busy summer of sport as spectators purchased supplies for events such as Euro 2024, Wimbledon and the Paris Olympics.

Food price inflation had hit its lowest level for three years in July but while the latest data brings an end to 17 straight months of falls, Fraser McKevitt, head of retail and consumer insight, highlights that it actually marks a return to the average levels seen in the five years before the start of the cost of living crisis.

The data will put pressure on the latest inflation figures this week though and may raise questions about whether there will be another interest rate cut.

What are shoppers spending their money on?

Take-home sales at supermarkets rose by 3.8% in the four weeks to 4 August 2024 compared with a year ago, according to Kantar’s research.

But shoppers are being more savvy, with spending on deals up by 15% while sales of products at their usual price was flat.

Many marked the start of the Olympics over drinks and snacks – sales of wine were up 35%, while nuts increased 60% and crisps rose by 10% on the Friday of the Opening Ceremony in Paris, compared with the previous week. 

England fans also roared on The Three Lions as the men’s team reached the Euro 2024 final, with £10 million spent on beer on the day, the most spent on a Sunday in more than three years.

As the country cheered on its sporting stars, many took advantage of the hot weather to get the barbeque out.

Sales of burgers leapt by 32% compared with the same time last year, while chilled prepared salad sales rose by 22% and the amount spent on ice cream was 23% higher.  It wasn’t all fun in the sun though – 28% more was spent on cough lozenges as people battled with COVID-19 and other summer colds. 

“Shoppers will find that the type of product they’re putting in their baskets will really dictate how much they pay,” says McKevitt.

“They’re continuing to take advantage of the wide range of promotions being offered by the grocers to help keep the price of shopping down.”

Where are households shopping?

Shopping habits regularly change depending on the economic environment, making hard to choose the best supermarkets for your investment portfolio.

Sainsbury’s appears to have been most popular with shoppers this summer, with its market share up by 0.5 percentage points over the 12 weeks to 4 August compared with the same period last year, Kantar says.

Its largest year-on-year share gain since July 1997 and was again the fastest growing of the traditional supermarkets, with sales increasing by 5.2%.  

Sales rose by 11.3% at online-only retailer Ocado, continuing its six-month run as the fastest growing grocer.  Its market share is up by just 0.1 percentage point compared with last year though, now standing at 1.8%. 

Waitrose’s share also increased by 0.1 percentage point to 4.5%, and with sales also up by 4.5%, it logged its strongest growth since November 2023. 

What do rising food prices mean for interest rate cuts?

Inflation is expected to rise tomorrow and rising food prices could be a factor.

That could delay further interest rate cuts from the Bank of England as it won’t want to fuel further price rises.

“Higher food inflation will feed into figures increasing the pressure on inflation,” says Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.

“It’s not going to have as much impact as energy inflation, but it all adds up.”  

She suggests a September rate cut is looking unlikely, particularly with unemployment figures showing the jobs market is healthier than expected and wage rises continue to outstrip inflation – which could provide more upwards pressure.

“The market is still expecting at least one more rate cut before the end of the year, but it won’t come quickly, and if we get more signs of inflationary pressure in the coming months, we may not get much movement before 2025,” she adds.

But Richard Carter, head of fixed interest research at Quilter Cheviot, is more hopeful.

 “Food price inflation has fallen a long way from where it was a year ago during the cost of living crisis and the latest tick-up seems to have been driven partly by summer-related spending,” he says.

“Overall, food price inflation of around 2% is consistent with the Bank of England’s CPI mandate so shouldn’t stop them cutting rates in the coming months. Their primary focus will be on wage growth and lingering price pressures in the service sector.”