UK food and drink inflation rose to 5.1 per cent in August, in a fifth consecutive annual increase and at the highest since January 2024 and amid fears that this figure could reach 5.7 per cent by the end of 2025.
Part of this inflation can be attributed to a rise in cocoa prices to record highs amid adverse weather conditions and pest outbreaks in West Africa.
"Cocoa prices remain elevated by historical standards, even after easing back from last year's stratospheric high into early 2025," said Neil Wilson, investor strategist at Saxo UK.
"The earlier surge was driven by a sharp supply squeeze, with El Niño [the warm phase of a Pacific climate cycle that causes ocean temperatures to rise above average and winds to be weaker] and other weather shocks hitting harvests, compounded by the spread of swollen shoot virus.
"EU sourcing regulations also weighed on planting, while many farmers have been slow to replace ageing trees."
Cocoa now trades around £5,000 per tonne, up from roughly £3,300 a year ago, after spiking to about £9,000 at the end of 2024.
With production falling for the second year in a row, the supply shortfall is forcing manufacturers to pass higher cocoa costs to consumers - and demand is plummeting.
"Higher prices have since helped cool the market, with demand destruction showing up in European and North American grindings data," Wilson added.
Christmas chocolate crunch looms
Consumers will feel the effects most acutely over the festive season. Expect household-favourite chocolates to get smaller but pricier - known as shrinkflation, where pack sizes reduce while retail prices remain the same.
A spokesperson at Lindt & Sprüngli told City AM the company has been navigating a "highly dynamic market environment shaped by inflationary pressures and extreme weather events."
The Swiss chocolatier raised prices 15.8 per cent in the first half of 2025 to offset raw material costs after cocoa hit record highs.
Severe dryness and pest outbreaks affected crops in Ghana and the Ivory Coast - the latter accounting for 84 per cent of UK cocoa bean imports last year (about 48m kg, worth £135m). Most global cocoa suppliers are low climate readiness countries, which means they are highly exposed to climate impacts but lack the resources to adapt.
West Africa weather conditions over the past two years have been detrimental to cocoa harvests. Unusually heavy rains in 2023 caused pest outbreaks, with cocoa plants rotting in the wet conditions.
UK suppliers particularly impacted
In March 2024, the region was hit by an extreme humid heatwave that scientists said was about four degrees celsius hotter due to climate change.
London's cocoa commodity market - tied closely to West African supply - is trading in backwardation, with near-term (spot) contracts priced above futures.
Because of unstable weather conditions and a shortage of cocoa, prices in London's cocoa market - closely tied to West African supply - are currently higher than the prices set for future deliveries.
By contrast, the New York cocoa market, which is more dependent on South American supply, is behaving more typically, with future contracts priced above today's market levels.
Wilson predicts the upcoming harvest from October to be "mixed".
"Reports point to better crops in Côte d'Ivoire [Ivory Coast], though Ghana appears less encouraging. Structural issues remain unresolved, however, with little progress on replanting.
"Prices have adjusted to improved supply, and some speculative froth has dissipated, but the market stays tight. Weather risks could keep cocoa trading at historically elevated levels."