Proactive Investors - Food inflation may well have peaked, according to Barclays (LON:BARC) analysts, following huge rises seen in recent months.
Grocery prices rose 17.2% in the four weeks to May 14, a fall of just 0.1% on April’s figure and the third highest recorded since 2008, Kantar data showed on Tuesday.
Barclays expressed optimism that prices had peaked though, citing lower fertiliser and energy prices which should help to ease costs on UK farmers in the coming months.
“We expect pricing for the food companies to step down to mid to single digits as we exit this year, compared to low double digits at the first quarter stage,” the bank noted.
However, Barclays listed a number of catalysts which may well push prices up again, including higher wages, a potential surge in demand from China and increasingly unpredictable harvest yields due to climate change.
A longer-term concern for the UK also comes from further reliance on imports as farmers leave the sector, which Barclays predict will generate £3.5bn in 2024, compared to £6bn in 2021.
Pointing to the likes of Nestle SA (LON:0QR4), General Mills Inc (NYSE:GIS) and Unilever PLC (LON:ULVR), Barclays noted uncertainty around gross margins for the year ahead, which will likely determine reinvestment levels and pricing.
“As gross margins recovery we expect reinvestment levels to increase,” Barclays added, with this likely to be seen among US companies before those based in Europe.