Looking at the headline food price inflation figures, all seems calm. Prices in June were down 0.2% on May, and annual inflation dropped back slightly to 10.9%, according to The Grocer Price Index.
But the headline figures belie continuing price volatility across grocery sectors, with month-on-month category inflation varying between a 3.4% fall in biscuit, confectionery and snack prices and a 5.5% price increase in the health and beauty category, where sales are largely stagnant.
The biggest driver of the drop in annual inflation was the easing of commodity price inflation. Prices have continued to rise this year on average, but at rates far below those seen last year: they rose by more than 4% in June 2008 alone.
In more than half of the categories, inflation increased slightly this month. Despite the overall monthly fall in GPI, prices rose in seven out of 12 categories.
Promotions were once again the main cause of falling prices in the categories where month-on-month prices were down. Milk and cheese were featured in heavily advertised weekend deals at Tesco, which, alongside Tesco, Morrisons and Sainsbury's, stepped up frozen promotional activity to match Asda’s long-running frozen £1 Rollbacks.
Bread started to benefit from a slight easing of bread-making wheat prices following last year’s price spike. A combination of long-running import deals from some breadmakers, combined with anticipation of a good UK harvest, has lowered the cost of bakery’s key inputs.
The food and drink sector is unlikely to be hit by year-on-year deflation, with only two of the 12 categories displaying year-on-year price falls (bakery and household). Food inflation continues to outstrip general inflation, at 10.9% versus the CPI rate of 2.2%.
However, a slight recovery in the pound against the euro and dollar has restored fresh produce prices to close to their long-term average. Despite a 3% increase in prices month-on-month, fruit and vegetables are just 3.8% more expensive than this time last year.
So far this year, inflation has been stabilising. But given increasing interest rates and food commodity prices, the calm situation doesn’t look set to last long.