IN Brief:
- Food and non-alcoholic drink inflation remained at 1.3% in August, with prices rising 0.4% during the month.
- Energy, fuel, ingredient, packaging, and logistics costs continue to put pressure on food and drink manufacturers.
- FDF forecasts food inflation reaching 3.9% by December 2026 before peaking at 6.4% in July 2027.
UK food and non-alcoholic drink inflation held at 1.3% in August, even as the wider inflation rate accelerated and food manufacturers warned that energy, ingredient, and logistics costs are yet to feed fully through to shelf prices.
Office for National Statistics figures show food and non-alcoholic drink prices rose 0.4% during August, leaving the annual rate unchanged from July. The rate was last lower in September 2021, when it stood at 0.8%. Food and non-alcoholic drink also made its smallest contribution to CPIH inflation since September 2021, at 0.11 percentage points.
The stable food rate contrasted with the wider Consumer Prices Index, which increased to 3.1% from 2.9% in July. CPIH, which includes owner occupiers’ housing costs, rose from 3.1% to 3.3%, with transport making the largest upward contribution to the monthly change.
Motor fuel prices were a significant part of that increase. Petrol rose by 9.1p per litre between July and August to an average 161.3p, its highest recorded level since November 2022, while diesel increased by 14.2p to 181.8p. Overall motor fuel prices were 23% higher than a year earlier, compared with an annual increase of 15.5% in July.
Within food, the picture remained uneven. Figures supplied by the Food and Drink Federation (FDF) showed some of the fastest annual increases in fish, water, preserved fruit, and pasta, while prices fell across 15 categories, including butter, fruit and vegetable juices, pizza, and jams and marmalades.
ONS data showed the annual rate for sugar, jam, syrups, chocolate, and confectionery fell from 2.5% in July to 0.6% in August, with the easing largely reflecting changes in chocolate confectionery prices. Meat prices also exerted a small downward effect on the headline rate, while vegetables moved in the opposite direction.
Dr Liliana Danila, Chief Economist at the Food and Drink Federation, said: “Inflation was steady in August because the entire food system, including manufacturers, is straining to find further efficiencies and keep costs as low as possible for shoppers. However, the cost pressures caused by war in Iran, droughts across the UK and Europe, and El Niño are still very real challenges for food and drink manufacturers. We expect these to filter through into prices in shops.”
The contrast between current shelf-price inflation and manufacturers’ cost expectations is central to the FDF’s outlook. Its September food inflation forecast puts food and non-alcoholic drink inflation at 3.9% by December 2026, with a peak of 6.4% forecast for July 2027.
The federation had expected food inflation to begin accelerating from August, but the annual rate remained unchanged this month. Its wider forecast is based on the expectation that higher costs will pass through more gradually than during the inflation shock that followed Russia’s invasion of Ukraine, producing a later and longer period of price pressure.
FDF says gas prices have more than doubled since February, while UK diesel prices have risen 28.6% since the start of the latest Middle East conflict. Its September analysis also points to sharp increases in agricultural commodities, including wheat, cocoa, rice, sugar, and coffee, alongside continuing pressure from packaging, logistics, labour, and regulation.
Those movements do not reach every food factory at the same speed. Energy contracts, commodity hedges, ingredient purchasing arrangements, product mix, and retailer negotiations can delay the point at which an input-cost increase reaches a finished product. Manufacturers that secured longer-term contracts may remain insulated for longer, while businesses renewing energy, transport, or ingredient agreements face a different cost position.
FDF argues that manufacturers have also lengthened hedging periods, diversified supply chains, and sought operating efficiencies following the energy shock of 2022. Competition for grocery market share and resistance to price increases from retailers have added further pressure to absorb higher costs rather than pass them through immediately.
That creates a lag between an input shock and the consumer inflation data. August’s 1.3% rate therefore captures prices already reaching shops, rather than providing a direct measure of the costs manufacturers are agreeing now for future production. The extent and timing of any subsequent rise will depend on commodity and energy markets as well as how much further cost can be absorbed through contracts, efficiencies, and margins.
Danila said: “Government can help tackle rising shopping bills. We’ve given the Chancellor suggestions on how he can help take the heat out of food inflation, including providing rapid and targeted energy support for food and drink manufacturers. Food and drink is an essential that households can’t go without. If the government is serious about tackling the cost-of-living, this sector needs to be a priority.”
For now, the official food inflation rate remains at a level last undercut in September 2021, while manufacturers are reporting a markedly less benign cost outlook. The next few inflation releases will show whether efficiency measures and contract protection continue to delay those pressures, or whether the pass-through expected in FDF’s forecast begins to emerge.
