Food price inflation in Britain is expected to rise to 3.9 percent this year and approach 7 percent in 2027, driven by Middle East unrest, rising input costs, and extreme weather events linked to the El Niño phenomenon, a leading grocery sector researcher said on Wednesday.
James Walton, chief economist at the Institute for Grocery Distribution (IGD), said that the current weakness in food price inflation will not last, explaining that buffer stocks and financial hedges have delayed, but not eliminated, pressures resulting from energy market turmoil and extreme weather events, according to Reuters.
The institute expects average food price inflation in Britain to range between 2.9 and 3.9 percent during 2026, before rising to between 5.6 and 6.6 percent during 2027, then stabilizing between 5.3 and 6.3 percent during 2028.
These expectations come at a time when the Bank of England is monitoring the repercussions of rising food prices on broader inflation, as it fears that rising food prices will raise inflation expectations, which could make price pressures more entrenched in the economy.
Weather conditions constitute one of the most prominent sources of risk to food supplies. The institute said that evidence indicates the occurrence of an exceptionally strong El Niño phenomenon, with its effects on crop production, quality and availability expected to continue until 2027 and beyond. Fruits and vegetables are expected to contribute most to the rise in food price inflation. Due to its short production cycles and high sensitivity to weather conditions.
In the face of these risks, the Grocery Distribution Institute said that increasing production capacity, especially within Britain, would enhance the food system’s ability to withstand disruptions and improve security of supply. Overall, his forecast is in line with estimates published earlier this month by the British Food and Drink Federation.
Despite these expectations, data from the National Bureau of Statistics showed that food and beverage price inflation fell last July to 1.3 percent, its lowest level since August 2024. August data is scheduled to be released on Wednesday.
On the other hand, a separate measure of grocery prices showed that pressures began to trend upward again, as grocery price inflation in Britain rose to 2.3 percent during the four weeks ending September 6, according to data from the market research company World Panel, affiliated with Numerator, issued on Tuesday.
Benchmark German bond yields for the euro zone fell from their highest levels in 17 years, on Wednesday, as traders held off, in light of the decline in energy prices, after they increased their bets on the European Central Bank raising interest rates due to inflation fears, and briefly placed a possibility of the deposit interest rate above 3.5 percent, earlier this week.
Markets are also awaiting the US Federal Reserve's decision on monetary policy, later today, while they are strongly betting that policymakers will raise interest rates by a quarter of a percentage point to a range between 3.75 and 4.00 percent, indicating further monetary tightening in the future, according to Reuters.
The 10-year German bond yield fell by 0.5 basis points to 3.53 percent, after reaching 3.5723 percent on Tuesday, its highest level since June 2009.
Energy prices fell, as Brent crude futures fell after a two-day rise that followed an unexpected and significant rise in US crude inventories, while gas prices fell by about 3 percent.
Market prices indicated that the deposit interest rate at the European Central Bank is expected to reach 2.86 percent by next December, compared to the current level of 2.50 percent. The markets also expect the interest rate to reach 3.37 percent, by November 2027, with a third increase fully calculated, and indicating a probability of approximately 50 percent to implement a fourth increase.
The European Central Bank raised interest rates last week for the second time this year. In an attempt to contain rising energy-induced inflation, he warned that price pressures may persist for a long time, raising bets on further monetary tightening.
On the other hand, some analysts believed that expectations of a rate cut went too far, noting that rising energy prices would likely put pressure on growth and contribute to calming inflation.
The two-year German bond yield, the most sensitive to interest rate movements, settled at 3.23 percent, after reaching 3.3123 percent on Monday, its highest level since September 2023.
The 10-year French government bond yield fell by one basis point to 4.49 percent, after recording 4.5531 percent on Tuesday, the highest level since September 2008.
The difference between French bond yields and German bonds, which are considered a safe haven, reached 96 basis points, after reaching 98.15 basis points on Tuesday, which is the widest difference since July 2012.
In contrast, the Italian 10-year government bond yield rose by 2.5 basis points to 4.21 percent, while the spread over German bond yields reached 87 basis points.
Copper prices rose slightly on Wednesday, recovering from their lowest level in more than 3 weeks, at a time when investors awaited the US Federal Reserve’s decision on interest rates, amid widespread expectations that they will be raised later today.
The 3-month price of copper on the London Metal Exchange rose by 0.53 percent to $14,158 per ton by 03:30 GMT, after touching $13,926 per ton on Tuesday, according to Reuters.
The most traded copper contract on the Shanghai Futures Exchange rose 0.64 percent to 107,610 yuan ($16,037.97) per ton.
Markets are currently pricing in a probability of more than 90 percent that the US Federal Reserve will raise interest rates by 25 basis points, compared to about 60 percent a week ago, in light of inflation continuing at high levels. High interest rates usually put pressure on economic growth, which is a negative factor for industrial metals.
The dollar maintained its trading near its highest level in two weeks, while oil prices remained above $100 a barrel, raising concerns about inflationary pressures.
Chinese brokerage Jinrui Futures said that lower copper processing fees, weak smelter profit margins, and low inventory levels provided support for the red metal.
There were also signs of improved actual demand in China, the world's largest copper consumer. The Yangshan copper premium, an indicator of Chinese demand for imported copper, rose to $110 a ton on Tuesday, the highest level since early August.
In contrast, copper stocks in warehouses registered with stock exchanges continued to rise. Copper stocks in London Metal Exchange warehouses increased to 249,225 tons as of Monday, while the cash copper price remained trading at a discount compared to the 3-month contract.
Copper stocks also rose in US COMEX warehouses for the second session in a row, reaching 768,098 short tons, equivalent to about 696,807 metric tons, as of Monday.
Copper prices fell from record levels recorded last week, after Reuters reported that the White House had not yet decided whether to impose customs duties on refined copper.
As for other metals on the London Metal Exchange, aluminum rose 0.20 percent, zinc rose 0.46 percent, lead 0.59 percent, and nickel rose 0.77 percent.
On the Shanghai Futures Exchange, aluminum rose 0.52 percent, zinc 0.56 percent, lead 0.41 percent, and tin 1.23 percent, while nickel fell 1.35 percent.
