Russia’s withdrawal from the Black Sea grain deal has caused wheat prices to soar and prompted new concerns.
Rishi Sunak may struggle to achieve his goal of halving inflation by the end of the year.
According to the Office of National Statistics (ONS), consumer price inflation was 7.9% in June, down from 8.7% in May and a larger decline than markets and ministers had anticipated.
However, Vladimir Putin’s decision to withdraw from the Black Sea agreement allowing grain to leave Ukrainian ports, which had stabilized food prices following Russia’s invasion, has already sent wheat prices soaring 8.2% on European stock exchanges and maize prices up 5.4%.
It followed Chancellor Jeremy Hunt’s warning that, despite the “first fruits” of the Government’s plan to halve inflation being seen this week, families are “still feeling a lot of pressure with very high food price inflation.”
A Treasury source stated on Thursday that ministers were monitoring food markets “and decisions that clearly influence market prices,” but cautioned that there was still “a long way to go” to reduce inflation.
“Inflation is still running at nearly 8%, which is four times higher than it should be, so (the decline) is positive, but not good,” said the source.
The EU’s chief of foreign affairs, Josep Borrell, told reporters that Russia’s actions would “create a massive global food crisis.”
Sir Robert Goodwill, chairman of the Environment, Food, and Rural Affairs Committee of the House of Commons, informed me that the end of the grain deal posed a significant threat to food prices.
“If a ship carrying grain sinks in the Black Sea, the repercussions will be enormous,” he said.
Additionally, Sir Robert warned that the European heatwave could cause fruit and vegetable shortages.
He noted that “we now import a significant amount of fruit and vegetables from the south of Spain,” which has been affected by the heatwave.
“Unseasonable weather can hinder production,” Sir Robert explained.
We witnessed this in January due to poor weather and a shortage of Spanish tomatoes.
Harvir Dhillon, an economist at the British Retail Consortium, stated that due to Russia’s withdrawal from the grain deal, food inflation may not fall as rapidly.
“Since Russia withdrew from the Black Sea grain deal, global wheat prices have risen by nearly 10 percent,” Mr. Dhillon stated.
“Additional attacks on grain storage facilities and shipments are likely to exert renewed pressure on global maize, wheat, and fertilizer prices.
As a result, food inflation on certain products, such as meat, dairy, and cereals, may not fall as rapidly as consumers and retailers had hoped in the coming months.
This additional cost pressure will arrive at a challenging time for retailers, who are already combating other headwinds.”
However, the official spokesman for the Prime Minister stated that it was “too early” to assess the impact of the end of the grain agreement.