Shoppers have been handed a Christmas reprieve in the ongoing cost of living crisis, as food inflation will now fall six points short of previous estimates by December.
Rowing back on its forecast that food inflation would hit 10% by Christmas 2026, the FDF has now predicted a milder but longer-lasting period of inflation.
The association now anticipates food inflation climbing from 1.3% to just under 4% by Christmas, rising steadily to a peak of 6.4% in July 2027. Averaging around 5.5% in 2027, food inflation will remain elevated into 2028, according to FDF forecasts.
FDF chief economist Liliana Danila told journalists at a press briefing on Tuesday that the persistent slowdown in inflation – linked in part to aggressive promotional activity at supermarkets – would reverse course as the Iran war, El Niño and regulatory pressures bit into supplier margins.
“About five months ago, we forecast that food inflation would reach 9% to 10% by December. Now we think that will no longer materialise,” she explained.
It has since become apparent that suppliers’ hedging strategies – whereby they lock in longer-term contracts for important commodities ahead of time – have become much more sophisticated since the Ukraine war sent energy and wheat prices skyward.
On average, FDF members now cover more than half of their core commodities with contracts of up to 18 months or two years.
“That means it will take longer for any change in costs to actually filter through to retail prices. In the past, when there was a [confluence] of inflationary pressures at the same time, inflation would persistently rise, reach a peak, and then slow down. Now, we’re not going to have a peak: it will rise, then plateau.”
Energy and commodity prices continue to build
The Iran war’s impact on global energy prices has also been moderated by a massive release of oil from countries’ strategic reserves – Chinese purchases from the global market have dropped by about 40% – and increased domestic production in the US.
But both oil and gas prices remain elevated compared to the start of 2026, with gas now about twice as expensive to UK companies than it was in February before the US and Israel attacked Iran.
The UK drought has likewise pushed up prices for many fresh staples. Iceberg lettuce UK wholesale prices almost doubled year-on-year by August 2026, with round tomatoes up around 80%. The drought has also forced many farmers to feed livestock with fodder normally held back for winter.
With drought also affecting much of Europe, imports from the continent will likewise climb in price.
And disruption to normal weather patterns in the coming El Niño – due to last until around February 2027 – will cause spikes in price for exposed commodities such as cocoa, palm oil, coffee and sugar.
Market intelligence firm Beroe has estimated El Niño could push global food commodity prices up by 14-16%.
An intensification of strikes on Russian and Ukrainian ports and shipping has also severely hit both of the grain-producing nations’ ability to sell to the global market. Between them, the two countries export 26% of the global supply of wheat.
Rising shipping, packaging and regulatory costs have likewise all bit into supplier margins.
Government action needed
Despite the rising tide of costs, suppliers are “doing everything they can” to keep prices low, said FDF chief executive Karen Betts.
Yet while companies have made significant efficiencies in their supply chains, operations, and made efforts to hedge and stockpile against costs, they face “intense pressures”, Betts added.
“Food prices have risen about 40% in the last six years, which is a massive pressure on household budgets, and we know that consumers shop around: they are not as loyal as they used to be,” she said.
“In that environment, companies really do have to respond and look at their operations in order to keep a lid on inflation. But these pressures are not going anywhere.”
Yet despite the FDF’s calls for the government to support food manufacturing – particularly in cutting red tape and supporting energy-intensive manufacturer’s energy costs – the association has thus far met with little response.
“The government is helping with energy costs for heavy industries: cars, ceramics and chemicals are getting support, but nobody in the food system is,” she said.
“We’ve been knocked back by the Treasury so far, but those conversations are absolutely worth having.”
As for regulation, she said manufacturers would benefit from a simplification of red tape around packaging.
“The plastic packaging tax (PPT) and packaging recovery notes (PRN) predate EPR and should be redundant now,” Betts said.
“EPR is now in place, but the government has been slow to take away legacy parts of the system – PPT and PRN should go.”
No comments yet