Let's talk about food inflation

Views From the Marsh - David Owen

I am in the process of reading Tim Lang’s excellent book on food security and the UK “Feeding Britain: Our food problems and how to fix them” - part of a whole series of excellent pelican books on various subjects of interest - at a time when food price inflation is back on the BoE’s radar (see pages 89-95 of their latest Monetary Policy Report), adding to issues still surrounding persistent inflation in parts of the labour market and services.

One issue of course, is the outsized role that food prices (around 10% of the CPI basket) can play in influencing household price expectations - something that has been known about for a long time, but is now up there with the BoE’s long list of concerns.

We thought we could perhaps add to the debate (see Andrew Bailey’s speech on the subject from 2023 here) by putting the latest data (CPI food price inflation, 4.6% in July, compared to 3.8% for the CPI overall) also into a very long context, making use of UK data back to 1901.

This cycle is somewhat different. Also given the way that the UK in particular imports over 40% of its food (a point that Tim Lang makes repeatedly in his book), shouldn’t the BoE, like the ECB, also be stressing more the risks that more frequent and extreme climate related events, even in other parts of the world, could have on food prices (as well as food security) here in the UK, and hence on the CPI more generally?

The food supply chain is now so complicated (including feed stuff and inputs into the UK’s food manufacturing sector), and so dependent on just-in-time-deliveries (who knew Dover was a major port?) that this all adds to the growing list of known, but difficult to quantify, risks.

But we could now be in for a long period of persistently high, and more volatile, food price inflation. Please consider reading on.