UK Inflation Bulletin: Effects of the summer sunshine likely to be felt long after the heatwave ends
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Summer heat expected to impact prices for key items as higher demand and food supply problems feed through into higher prices
The Met Office has declared 2018 the joint hottest summer on record, and the combination of warm temperatures and England’s World Cup run has proved a boon to sales in retail and hospitality. August’s CPI figures of 2.7% support this, showing an increase of 0.2% from July.
Consumers may not have considered how the heatwave will feed through to the prices they pay later in the year. We discuss some of these effects below.
Dairy prices moving up
In recent years much has been made of the low milk prices in the UK and the resulting crisis facing producers – calculations by Simon-Kucher suggest there are now 13,600 dairy farmers in the UK, compared to more than 25,000 in 20001. Scorching weather over the past few months has depressed yields across Europe, with many farmers resorting to using forage stocks intended for winter. The supply of milk always falls in the latter half of the year as cows move indoors, so expect milk and cheese prices at the till to move upwards, mirroring the significant increase seen in the recent price of butter – you pay 17.6% more at the supermarket now than you did this time last year.
Cereals skyrocket
Current indicator suggest prices for wheat and maize will increase over coming months2. Refiners and retailers will accept some margin losses, but consumers will also shoulder some of the burden as price increases feed through. Poor harvests will push up the prices of staple goods like bread and cereals, currently down 0.2% this year, but also meat in the longer term as farmers pay more to feed their animals. Chinese tariffs on soybeans have reduced global prices by approximately 20%, providing some relief, but the wholesale price of beef, having fallen by 15.2%3 during July as farmers rationed grazing land, has already recovered by 5.9% in the last three weeks, a trend set only to continue.
French wine on ice
The defining season in the UK was summer, but in Bordeaux and Champagne it was spring. Freak hailstorms in late May destroyed thousands of hectares of grape vines, and over a quarter of the vintage in some communes such as Cognac. Frosts last year resulted in a 39% year on year fall in harvest volume in Bordeaux, and a corresponding 16% increase in prices for wines from the region. Damage this year is more modest, but don’t expect the amount customers pay to fall back significantly.
This dire news is in contrast to general trends: the proliferation of wine growing in the southern hemisphere has helped to stabilise production, although latest figures indicate a generic bottle of wine was priced 2.9% higher in August versus being down 3% in July year on year.
Rosalind Hunter comments:
August’s inflation figures show the largest increase in wine prices seen in nearly 2 years (September 2016). However prices are often fluctuating in this market and both UK suppliers and consumers have a wide range of source markets to consider if one becomes unrealistic in terms of price. Given these factors, wine lovers shouldn’t starting panicking yet about the price of their favourite tipple in the future.
1 Dairy herd figures come from the Agriculture and Horticulture Development Board, the Scottish Dairy Cattle Association and Dairy Council Northern Ireland
2 Cereal futures prices for the November London wheat and Paris maize futures.
3 Deadweight beef prices from the Agriculture and Horticulture Development Board.
Want to know more? Read our previous Inflation Bulletins
January 2018 | February 2018 | March 2018 | April 2018 | May 2018 | June 2018 | July 2018 | Aug 2018