Proactive Investors - Food manufacturers have seen the first drop in raw material and other costs since 2016, new research from Lloyds (LON:LLOY) Bank has found.
Lower commodity, energy and shipping prices more than outweighed a sharp hike in labour costs, the bank said.
United Nations FAO food price index has dropped 21% over the past twelve months, said the report, which had cut production costs even though wage rates are rising twice as fast as average.
"It will still take some time before we see the benefit in terms of shelf prices," said Annabel Finlay, a managing director at Lloyds Bank.
"This is, in part, due to the long-term nature of contracts between the manufacturers and retailers, as well as the broader segments of the production chain."
Latest data from Kantar showed food price inflation eased to 16.5% in the four weeks to 11 June, against official numbers showing an 18.5% rise in April.
Supermarkets have started to react to lower wholesale prices with prices of milk and other dairy products dropping after Tesco (LON:TSCO) cut its prices.
Grocers have consistently denied they have been profiteering from inflation, but recent promotions have included many prices bring ‘frozen’, which analysts point out also works in their favour when wholesale prices are falling.
“Prices rising at 16.5% isn’t something to celebrate and it’s still the sixth highest monthly figure in the past 15 years," said Fraser McKevitt, head of retail and consumer insight at Kantar.
Lloyds Bank prepares its analysis of S&P Purchasing Managers' Index data covering around 1,300 companies.