UK Food Inflation Set for Sharp Rise Despite Global Grain Market Calm

UK food inflation is expected to rise from its current level of 1.3% to between 3% and 5% by early 2027, despite a recent update on global grain markets that has calmed some concerns.

The US Department of Agriculture's September World Agricultural Supply and Demand Estimates (WASDE) report pointed to higher wheat supplies and fuller stores globally, with a 3.5 million tonne increase in global wheat supplies and a 3 million tonne boost to ending stocks.

Australia is expected to contribute much of this extra output, thanks to favourable growing conditions in South Australia and Victoria.

However, Shore Capital analysts Clive Black and Akhil Patel still expect British food inflation to rise due to other factors, including Brent crude at $107 a barrel, which will increase distribution and packaging costs, as well as fertiliser prices that are 15% above pre-conflict levels.

The analysts also point out that UK dairy prices are expected to firm after a poor summer for pasture, while pig meat costs may rise due to a wave of sow culls across Europe.