Households to be hit at the checkout as food inflation set to more than DOUBLE by June because of Iran war
- Rising energy prices will filter through to higher food production costs
Food prices are set to rise even further this summer as supply disruptions caused by the Iran war filter through to supermarket shelves.
Grocery inflation is forecast to increase to 8 per cent by June if global energy markets remain under pressure, according to analysts at the Institute of Grocery Distribution.
This ‘severe but short-lived’ scenario would push food inflation to more than double the 3.6 per cent recorded by the Office for National Statistics in January.
The closure of the Strait of Hormuz has sent shockwaves through global energy markets, with oil and gas prices soaring.
Rising energy prices have historically been reflected in higher food prices. IGD’s forecast shows inflation peaking in three months' time, rather than immediately, because cost increases take some time to filter through the supply chain.
The ultimate impact on prices will depend on the duration and severity of the war, as well as further damage to oil and gas facilities, the IGD says.
Food inflation will accelerate to their highest level in three years because of the energy shock
Share this article
A protracted conflict, which now seems more likely, will directly affect the food supply chain, which uses a lot of energy. Fertiliser prices are also rising because of trade disruption in the Strait of Hormuz, which will also add to costs.
Households have battled rising food prices since the start of the Russia-Ukraine war, when grocery inflation peaked above 19 per cent.
Food inflation has persistently outpaced the headline rate and remains 38 per cent higher than pre-Covid levels, which the IGD says leaves households far more exposed to further price spikes.
A sharp rise in prices by June would see food inflation average around 6.4 per cent across the year, adding over £150 to the average household’s annual grocery bills.
Even if there is a more moderate and temporary energy shock, IGD forecasts food inflation to increase to an average of around 4.8 per cent in 2026.
Families could also face higher energy bills if gas prices continue to rise and flow through to the price cap by the summer.
Households were already facing higher costs as supermarkets battle a rising tax burden and labour costs, which are weighing on margins.
While persistently higher prices have fueled criticism over excess profits, IGD says ‘the evidence points in the opposite direction’.
‘Margins for basic food and drink remain exceptionally thin, and in many cases have fallen in recent years,’ says IGD chief economist James Walton.
‘For example, margins on nine everyday food items average just 1.5 per cent across the supply chain, with items such as chicken breast sold at cost and beef mince generating under 1 per cent margin.
'When margins are this tight, businesses have limited capacity to absorb global shocks, invest in resilience or protect supply. Over time, that increases the risk of weaker availability and greater price volatility.’
SAVE MONEY, MAKE MONEY
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence. Terms and conditions apply on all offers.
