Inflation is back
Eighteen months ago it would have been a challenge to write about inflation. Recently we have benefited from stable global commodity markets and an efficient global trading infrastructure. Built over many years this has suppressed and controlled costs. Historically, inflation occurred in extreme cases. This could be as a result of extreme weather events and typically restricted to particular products, category or geography.
In foodservice we would argue that inflation has always affected our sector, but it wasn’t reflected by ONS statistics. The perfect storm created by Covid-19, Brexit, Geo-political posturing and global events, such as the Suez Canal blockage have contributed to what is now becoming an inflationary maelstrom. If we’re not already paying for increased costs, we will very soon. This is no longer a sector-specific nor just a food issue, it will affect everything.
CPI fell to 2.1% in July from 2.4% in June. This supported the Bank of England’s view that rising inflation would be temporary, with no corrective action required. There are warning signs that the inflationary pressures on businesses are increasing. Raw materials and energy costs are rising strongly, impacting the manufacturing sector. Wages are also rising, impacting service providers like bm, and in particular those who provide services to us. This includes drivers, pickers, packers and growers etc. It’s clear that the imbalance between supply and demand, whether as a result of Brexit, Covid-19 or both, is manifesting itself in products, services and people as well. The quickest way for many businesses to solve it, to coin a phrase is to ‘throw money at it’. Inevitably, the longer term impact of this will be inflation.
Is inflation temporary?
The Bank of England think (or hope?) it is temporary. There are lots of reasons to suggest otherwise and we should all brace ourselves for a longer period of rising costs. This could be as a result of the continued after-shocks from Covid-19 and the time taken for a global economic recovery. Or from the geo-political action to tackle climate change. Changing from products that have a detrimental effect on the health of our planet has associated financial implications.
The shift in labour markets in the UK has been profound. The resulting impact on consumer behaviour is a significant shift. We cannot ignore the longer-term impact of labour force demographics, skills and access which, pre-Covid-19 and Brexit were perhaps taken for granted. Remedying this will have a cost.
So, what’s the solution?
Many argue that the true cost of food has been misleading for some time. A correction in the price of food will help and sustain many businesses and livelihoods in the supply chain over the longer term. Equally, many of the measures businesses have made over the course of the pandemic to reduce waste and become more efficient will remain. Therefore inflation, if respected, shouldn’t be seen necessarily as a bad thing. The role of our procurement and supply chain teams will principally be about collaborating with suppliers. They will explore alternative ways to mitigate rising costs, including sourcing alternatives, improved forecasting and committing to longer-term contracts to allow for investment.
We have recognised the compelling need too for improved communication and interaction across the business. Buying doesn’t typically start and finish with the procurement team. The skills and capabilities of our team will help colleagues in IT, HR, Finance and Operations etc. We will work with both our suppliers and clients to help navigate these inflationary waters!