Food prices to soar after sterling collapse, warn retail chiefs
Food prices are set to rise as the protection policies that supermarkets currently have to shield them from the fallout of sterling’s collapse are close to expiring, retail chiefs warn.
Brits will end up paying more as the pound continues to slump
The head of one of Britain’s largest supermarkets said that as the currency protection or hedges that grocers have in place will expire over the next months, shoppers will end up paying more at the tills as the pound’s slump has slashed their purchasing power.
Around half of the food consumed in the UK is imported. Supermarkets and other firms that do business overseas regularly buy foreign exchange derivatives from investment banks to protect themselves against adverse currency swings.
Since June’s referendum, the value of the pound against major world currencies has collapsed. On Friday sterling closed at $1.22 versus the US dollar.
The warning comes ahead of new figures from the Office for National Statistics on Tuesday that are expected to show that inflation has risen to its highest level since August 2014.
Economists believe that the ONS will say that consumer price index inflation rose from 1.2 per cent to 1.4 per cent in November, because of the pound’s crash and rising food commodity prices.
Inflation in Britain has risen to the highest level since 2014
Inflation should increase further as sterling’s depreciation continues
Capital Economics chief economist Jonathan Loynes predicted that inflation will hit the Bank of England’s 2 per cent target within months.
He said: “Inflation should increase further as sterling’s depreciation continues to work its way through the supply chain and the falls in fuel and food prices at the start of 2016 drop out of the inflation rate.
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About half the food consumed by Brits is imported from abroad
“This should see CPI inflation back above target in a few month’s time.” On Wednesday the ONS will publish the latest labour market figures, which are set to show the average rate of pay growth is flat at 2.6 per cent per year.
IHS Markit chief European and UK economist Howard Archer said: “It looks inevitable that consumer purchasing power will deteriorate markedly over the coming months as inflation rises higher and earnings growth is muted.”