‘The government must end its scapegoating of retailers’

It’s been almost two years since the Bank of England hit its target of 2% inflation. That’s 23 letters from the Bank of England governor to the chancellor explaining why that has been missed.

Inflation over the last quarter has started going in the right direction – with gradual falls in food inflation and headline figures – but progress remains slow.

There’s frustration about the Bank’s repeated forecasting errors. Even the governor himself conceded there were “very big lessons to learn”, so clearly its models aren’t yet fully reflective of the realities of modern supply chains.

This put more pressure on the prime minister who in January, presumably trusting forecasts by the Bank, pledged to halve inflation by the end of the year.

“Labour shortages, freight issues, dislocation of supply, Brexit, a weakening pound, the New Living Wage, the impact of climate change – the reasons to expect rising costs were obvious”

Perhaps Mr Sunak would not have been so confident had he and his team paid greater heed to retailers back in January – or, in fact, many months before that.

I remember conversations with retail leaders seeing inflationary pressures coming even before the war in Ukraine.

Labour shortages, freight issues, dislocation of supply caused by the pandemic, Brexit friction, a weakening pound, rises in the New Living Wage, the impact of climate changes on commodities and harvests… the reasons to expect rising costs were obvious.

The invasion of Ukraine put this into overdrive. Global wheat and corn prices rose steeply. Fertiliser and animal-feed costs increased, pushing up the cost of food production in other countries. The weaker pound added pressure to imports across the board.

Energy prices shot up affecting manufacturing, retail operational costs and transport, not to mention the impact on households.

Labour shortages and pressures on household incomes began to push up wages, which fed back into costs and spiralled from there.

As a result, the British Retail Consortium (BRC) spent months warning that rising costs would inevitably lead to increased prices.

Unfortunately, many politicians, NGOs and commentators instead put the blame for high inflation on retailers.

“No one wants to put their prices up. Why? Because we have a highly competitive retail market”

MPs hauled in supermarket leaders and accused them of “profiteering” and “greedflation”. Even a cursory look at food retailers’ profit margins should have put such ideas to bed.

No one wants to put their prices up. Every retailer I speak to is very conscious of the pressures that many customers are facing. And they have done their best to shield them by absorbing as much of these increased costs as they can.

Why? Because we have a highly competitive retail market.

They’ve expanded value ranges, offered discounts to vulnerable groups, raised staff pay and invested in reducing costs for the future. Yet some MPs and journalists refused to see it.

So it was no surprise that all eyes were on the recently released Competition and Markets Authority (CMA) report into grocery competition and pricing. And the results were clear as day.

“Exonerated” is how one retail colleague described their feelings to me on the release of the CMA report.

The CMA was clear that “the evidence we have seen indicates that recent high price inflation for groceries does not appear to date to have been driven at an aggregate level by weak or ineffective competition between retailers”.

Instead, the report noted how food retailers were going to great lengths to absorb rising costs, even seeing operational profits drop to a historic low of just 1.8%.

When looking at why costs had risen, the CMA noted a “confluence of factors – large shocks in both commodity prices and energy prices, coupled with rising labour costs”, exacerbated by Russia’s invasion of Ukraine.

It’s disappointing that it took the CMA to point out what to many in the industry was seemingly obvious.

“The government must stop looking for scapegoats. Instead, it should look at what contribution it can make to bringing inflation down”

There were some recommendations on unit pricing, though the CMA was quick to note that the issues largely “stem from the rules themselves, which permit unhelpful inconsistencies in retailers’ practices and leave too much scope for interpretation”. Ironically, something that we and retailers had already pointed out to the CMA and the government.

Retail’s central role in people’s lives has made it an easy political target for the cost-of-living crisis. But the evidence of a competitive food retail sector is now undeniable – blaming retail makes no sense.

The government must stop looking for scapegoats. Instead, it should look at what contribution it can make to bringing inflation down. We recently saw an understanding of this, with the government acting on the BRC’s call to extend the timelines on its reforms to Extended Producer Responsibility, the new recycling levy.

The next vital thing the government must do is freeze the rates multiplier from April 2024 – otherwise, another £400m will be going on to consumer prices because of their policies.

Retailers are problem solvers. So, we need the government to work with us – not over us – on upcoming policies.

If the government truly wants to halve inflation by the end of the year, they would be well advised to spend less time criticising retailers and more time listening to them.

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