Rising Inflation in Food Manufacturing Sector Sparks Concern
In a surprising turn of events, year-on-year inflation in foodservice prices surged to 21.4% in April 2023, as reported in the latest edition of the CGA Prestige Foodservice Price Index. This sharp increase signals the continued strain on businesses within the food manufacturing sector.
An Abrupt Rebound in Prices
After experiencing a slowdown in the first quarter of the year, inflation had briefly dipped below 20% in March, marking the first time since mid-2022. However, the recent surge in April emphasizes the significant cost pressures faced by foodservice companies at present.
Drivers of Inflation
The escalation in prices can be attributed to the heightened pressure in the categories of vegetables, fish, and sugar, jams & syrups. Month-on-month, these categories witnessed price hikes ranging between 3% and 4%. Of particular concern is the dramatic increase in potato prices during April, driven by rising production costs, labor shortages, lower storage crops, and a shortage of supplies across Europe. Unfortunately, this supply-demand imbalance is expected to persist for the remainder of 2023.
Favorable Conditions in Key Influencers
On a more positive note, three major factors influencing food prices—oil, exchange rates, and commodity markets—currently exhibit relatively stable conditions compared to the volatile market of 2022. Brent Crude oil prices have eased from $87 per barrel at the beginning of April to below $80 by month-end, with further expected declines throughout May. Additionally, the stability of the sterling exchange rate offers some respite. Categories previously impacted by the war in Ukraine, such as oil & fats and dairy, continue to experience subdued inflation.
The Outlook for Inflation
Prestige Purchasing CEO Shaun Allen remains cautiously optimistic, asserting that inflation is likely to gradually ease throughout 2023 as commodity pricing and the impacts of the previous year take effect. However, the pace of this decline remains uncertain due to challenges posed by energy costs, labor expenses, and climate change. These factors continue to impede progress toward reducing inflation.
Industry Challenges Amidst Inflation Surge
James Ashurst, client director at CGA by NIQ, expressed disappointment over the inflation surge of April, despite fleeting respite during the first quarter of the year. Alongside soaring costs in key inputs and the strain of the cost of living crisis on consumers, his remarks underscore the extraordinary challenges faced by businesses in the hospitality sector. While the long-term outlook for the industry remains positive, the current trading environment remains exceptionally difficult.
