From supermarket aisles to central banks - why food costs matter most
Peter McGahan
Monday 6th October, 2025.
I’M a pretty, poor shopper. It’s hard to watch. My energy levels fall like my phone battery with everything on full. And the music. Long sigh. Oh, and at the end they give me a job with no pay, to beep my own food through, and charge a fortune. It’s an all-round ‘no thanks’, like facing a new member of staff at an airport, who’s just been given a lanyard and high viz jacket, with no training on the danger to the public of their mere presence. (A lot off my chest there).
A new Bank of England working paper confirms what many families already sensed: among all the inflation shocks, it’s food prices - the cost of bread, milk, pasta, which bites hardest today and cast the bleakest shadow on expectations for tomorrow. More than rising energy bills; more than surging rents. It’s your weekly shop which shapes what people believe inflation is, and what they believe it will be. And those inflation expectations matter deeply because they guide how central banks respond. Why, because we view food differently - we believe it’s here to stay and it's very evident in front of us each week.
The researchers surveyed households over a period of nearly 20 years, looking at what people think is happening versus what’s recorded in statistics. What they found was striking: shocks to food prices don’t just push up people’s short-term inflation perceptions, they drift into their medium-term forecasts, even out to five years. Once consumers expect high inflation, they don’t shrug it off easily. With petrol costs, we think its temporary, ie 'prices will fall again'.
For the Bank of England, this is a red alert. If food prices rocket, people start to assume high inflation is just the norm. They demand bigger pay cheques. Businesses raise prices in turn. It’s a loop.
That’s the conventional story. If food inflation pushes expectations upward, policy must act swiftly, interest rates need lifting sharply to pin those beliefs back in place. That line of thinking underpinned much of the sharp rate hikes in 2022-23.
There’s another way to tell this story, not just why food inflation feels so painful, but why it hits the poorest hardest, and why blunt interest-rate tools carry heavy social cost.
Heterodox (non-mainstream) economists argue the recent inflation surge wasn’t overexcited demand, but supply disruptions and market power. War in Ukraine, shortages of fertiliser, bottlenecks in shipping, factories closed due to covid with backlogs, shipping costs. The FAO Food Price Index hit record highs in early 2022. Meanwhile, studies from the International Monetary Fund (IMF) and European Central Bank (ECB) indicate that in Europe many consumer price jumps can be traced, not to wages, but, to rising corporate profits and higher input prices. Wage growth was more an effect, than a cause.
Seen this way, food inflation isn’t about expectations spiralling on their own - it’s about very real shocks in the global supply chain, plus domestic firms enjoying mark-ups. In Britain, data in 2023 showed poorer families faced a higher “effective inflation” than richer ones, largely because food, energy, and basics made up a bigger slice of their spending. For them, double-digit food inflation was a choice between heating or eating.
What then should policymakers do? The heterodox view suggests that relying only on rate hikes, which push up mortgages, car loans, credit card bills, is a blunt instrument. Better tools include windfall taxes or anti-profiteering laws when mark-ups surge; VAT cuts, or subsidy relief on essential foodstuffs; investment in improving logistics to ease bottlenecks; stronger competition policy in supermarkets and agriculture when markets are concentrated. In other words: fix what’s broken in supply; protect those who are most vulnerable; avoid avoidable damage, address the root causes directly, cushion the blow for those least able to absorb it.
Where the mainstream and heterodox views diverge is in cure rather than diagnosis.
Looking back, each side has part of the story right. Central banks did succeed in pulling inflation down after 2022, though not without cost: real incomes fell, borrowing became more expensive. And heterodox economists were more accurate in explaining why inflation spiked, and why the poorest suffered most.
For society, food inflation isn’t just an index - it’s the supermarket trolley, the budget, the emptying wallet. For policymakers, it’s where economy and politics collide. And for economists, it’s a reminder our models must be anchored in what people actually live.
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Peter McGahan is the Chief Executive Officer of Independent Financial Adviser firm, Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
