Food Inflation hit 4% as healthy options proved most expensive

This weekend, the Saturday Economist John Ashcroft, reported that food inflation hit 4% in January but it was the healthiest foods that proved to be more expensive up 9% with chocolate up less than 2% – “the delicious irony of the healthy diet with inflation above target.”

Fresh fruit cost 7% more but the price of sugar, jam, and chocolate was up by less than 2%.

The overall CPI index was unchanged, up by 3%, the same level as in December. There were some changes, service sector inflation returned to 2.7% from 2.5% prior month. Goods inflation fell from 3.4% to 3.2%.

Leading UK Economist John Ashcroft explains:

For the rest of the year, the Bank of England expects inflation to fall back towards the 2.5% level. With earnings expected to rise, the real income squeeze on households should ease back in the second half. It is a fair assumption. Producer prices both input and output eased back in January. The effects of the fall in Sterling and the rise in oil prices continue to ease out of the headline numbers.

So what of the high street? Retail sales disappointed. The worst start to the year since 2013, according to Tom Knowles in The Times. Remember when retail sales were boosted by the January sales? Then came “Boxing Day Red” as retailers just couldn’t wait five days to generate additional cash. Soon followed, the Blue cross series, pulling the action into a pre Christmas kicker as nerves jangled and tills were silent ahead of the holiday rush.

Online sales and the challenge of multi channel retailing continue to disrupt. Over the last two years, the volume action has moved to November. Black Friday and Cyber Monday have pulled the volume into a “quiet month” in the quarter. Was it really so grim in January?

Retail sales volumes were up by 1.6%. Not so bad really! That’s the average January volume increase over the last ten years. Sales values increased by 4.4%, ahead of inflation and pay! Retailers like inflation. Lower volumes at higher margins, the antidote to the Amazon model. The Brits were spending on gym wear and equipment in the month. It was ever thus. Food sales were down, yes even sales of chocolate and jam. So much for price elasticity, the headlines do no often tell the full story …

As food inflation sits at 4%, the Week in Markets

Thanks to John Ashcroft, the Saturday Economist, for providing his Expert Opinion