Food insecurity
Global supply chain inflation and bottlenecks, increased consumption of goods (instead of services), aggressive fiscal stimulus in the US, and the war in Ukraine have all contributed to global inflation. While inflation may no longer be "transitory", the factors driving inflation are having uneven impacts globally across regions and commodities. Now, central banks on both sides of the Atlantic are considering or already taking measures to combat inflation.
Consumer food prices continue to rise
In the US, annual food price inflation in June was 10.4%, according to Consumer Price Index (CPI) figures from the US Bureau of Labor Statistics. Food at home (grocery) saw higher inflation at 12.2% in June, while food away from home (restaurants, foodservice) registered an annual inflation rate of 7.7%. The US Department of Agriculture (USDA) now forecasts US food price inflation for 2022 between 8.5-9.5% higher than 2021, which would be the highest food price inflation rate since 1979.
Consumer food price inflation remains a global challenge, our special report on food & agricultural commodity inflation takes a closer look on the matter. In the eurozone, annual food and non-alcoholic beverage price inflation was 10.4% in June, according to the most recent Harmonised Index of Consumer Prices (HICP) data from the European Central Bank (ECB). In the UK, annual price inflation for food and non-alcoholic beverages was 9.8% in June, according to figures from the country's Office of National Statistics.
Food price inflation is nearing similar levels in the US and Europe, a closer look shows two different inflation pictures on each side of the Atlantic. Eurozone sees higher inflation rates for wheat, fats and oils, commodities affected by the war in Ukraine.
Rising food prices and consumer good inflation are changing consumer spending habits. According to a series of recent investor communications, food, retail and FMCG companies report consumers are changing spending habits to prioritize food and other essentials as inflation eats into household budgets.
Mixed impacts across the food sector as inflation hits consumer spending are causing consumers to switch to cheaper alternatives. However, consumers are still sticking to certain premium brands as “affordable indulgences”.
This creates a challenging landscape for food manufacturers as they face their own inflation challenges with higher input and operating costs. Cutbacks in consumer spending also limit the possibility for companies to pass these costs on to consumers, affecting profit margins.
Next, we look at the economic impacts of inflation and the possibility of a global recession.