UBS says food prices may remain elevated as supply costs rise

UBS says climate change, higher production costs, pressure on agriculture and stronger demand may keep food inflation structurally higher than its historical average of about 2.5%. Global food inflation has eased from post-pandemic highs, but the bank says conditions point to more persistent price pressure.

The bank identified five main drivers: extreme weather, weak farm profitability, stricter animal-welfare rules, faster labor-cost growth and global demand rising faster than supply. It said higher costs are likely to be passed on to consumers because profit margins across the supply chain have been squeezed.

UBS said the impact will vary by region. It expects U.S. food inflation to stay close to historical levels because intense competition offsets structural cost pressure, while ASEAN countries and China face greater inflationary pressure.

The bank said agricultural technology could improve productivity and reduce costs over time, but high upfront costs and uncertain returns are limiting adoption. It expects basic food spending to gain share, putting more pressure on restaurants and nonfood retailers.

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