Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

OF all the negative consequences of inflation it is the rising cost of our food that is likely to hit home hardest with households.

Prices are on the up in practically every area of our spending, leading to inflation data that is running way above target at 5.4% in the UK, but at least some of that is on items that we can avoid if we really need to. Spending on food is different. You might be able to put off buying a new car or replacing your phone for a while, but the weekly shop must go on.

The Office for National Statistics, which produces UK inflation data, has confirmed that it was food and non-alcoholic drinks that were the biggest contributors to the annual rise in inflation at the latest reading. But delve into the figures a bit more and you see that contribution has been concentrated in just the past few months - something that will come as no surprise to anyone visiting a supermarket recently.

And food price rises are unlikely to end there. John Allan, chairman of the UK’s biggest grocer Tesco, warned at the weekend that while his company had managed to keep food price inflation in its stores to 1% in the past three months shoppers should expect another 5% rise by the spring.

The cruelty of rising food bills is that those on low incomes are likely to spend a higher proportion of their income on them, so price rises hurt them the hardest.

Behind rising prices at the supermarket checkout lie a multitude of factors and causes. We’ve become used to disrupted supply chains during the pandemic that have caused inflation on practically all items, but there’s even more going on when it comes to food.

At the most fundamental level, food is becoming more expensive for farms to produce thanks to reasons unconnected with short-term disruption from the pandemic. Climate change has increased the number of weather events recorded as being disruptive to food production, including droughts last summer which impacted wheat production in Canada, Russia and the US.

We’ve produced an animated graphic to illustrate the rising cost of food production globally which helps to illustrate these effects over time.

To climate change you can add the rising cost of oil, which is making shipping and other transport costs more expensive, as well as the contraction of supply chains that happened in the aftermath of the pandemic. Then you have the higher distribution costs faced by companies like Tesco and the other supermarkets, including rising wage bills to pay workers.

Taken together it represents something of a perfect storm for rising food prices. That means the pain at the checkout may still have further to run.

Trying to play the rising food commodity price theme from an investment point of view is possible, although it is a volatile area of the market that is likely to only be appropriate at the margins of portfolios.

Two funds on the Fidelity platform play into this theme - Sarasin Food & Agriculture Opportunities and Baring Global Agriculture, both of which invest in companies either directly or supporting the food production industries.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities or funds should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

Share this article

Latest articles

Will electric cars get cheaper?

Lithium shortages could make electric car buyers think again.


Becks Nunn

Becks Nunn

Fidelity International

Greencoat UK Wind Investment Trust

Renewable energy trusts the chief beneficiaries of the surge in power prices


Nick Sudbury

Nick Sudbury

Investment writer

Watch: Market News Update - 8 August 2022

In this week’s market update: investors struggle to decide if the glass is ha…


Tom Stevenson

Tom Stevenson

Fidelity International