Russia’s pulling out of the Black Sea grain deal has sent wheat prices soaring and sparked fresh fears Rishi Sunak may struggle to fulfil his promise to halve inflation by the year’s end.
Consumer price inflation stood at 7.9 per cent in June, according to the Office for National Statistics (ONS), down from 8.7 per cent the month before, and a bigger drop than markets and ministers were expecting.
But Vladimir Putin’s decision to quit the Black Sea deal to allow grain to leave Ukrainian ports, which had stabilised food prices following Russia’s invasion, has already sent wheat prices soaring by 8.2 per cent on European stock exchanges, while corn prices were up by 5.4 per cent.
It came after Chancellor Jeremy Hunt warned that while the “first fruits” of the Government’s plan to halve inflation were seen this week, families are “still feeling a lot of pressure with very high food price inflation”.
A Treasury source on Thursday said ministers were monitoring food markets “and decisions that clearly influence market prices”, while warning there was still a “long way to go” to bring down inflation.
“Inflation is still running at almost 8 per cent, which is four times higher than it should be, so it (the drop) is positive, but not good,” the source said.
The EU’s foreign affairs chief Josep Borrell meanwhile told reporters that Russia’s actions would “create a big and huge food crisis in the world”.
Commons Environment, Food and Rural Affairs Committee chair Sir Robert Goodwill meanwhile told i that the end of the grain deal posed a major threat to food prices.
“If a ship (carrying grain) gets sunk in the Black Sea, that will have a massive effect,” he said.
Sir Robert also warned that the European heatwave could lead to shortages of fruit and vegetables.
He noted “we now import a lot of fruit and veg from the south of Spain” which has been hit by the heatwave.
“If we get unseasonable weather it can disrupt production,” Sir Robert said.
“We saw that in January with the bad weather and the shortage of tomatoes from Spain.”
Harvir Dhillon, an economist at the British Retail Consortium, said food inflation might not fall as quickly due to Russia pulling out of the grain deal.
“Since Russia withdrew from the Black Sea grain deal, global wheat prices have risen by nearly 10 per cent,” Mr Dhillon said.
“Further attacks to grain facilities and shipments will likely put renewed pressure on global corn, wheat and fertiliser prices.
“As a result, food inflation on some products, such as meat, dairy and cereals, might not fall as quickly over the coming months as consumers and retailers had hoped. This additional cost pressure will come at a difficult time for retailers, who are already battling other headwinds.”
But the Prime Minister’s official spokesman said it was “too early” to gauge the impact of the end of the grain deal.