There's no inflation, but British food costs are soaring anyway

Food Cost Increase Adds L750 to Annual Bill

By James Kirkup
The Telegraph, London
Tuesday, January 15, 2008

http://www.telegraph.co.uk/news/main.jhtml;jsessionid=NNERV0R01VRVVQFIQM...

Food prices are accelerating at their fastest rate since records began, fuelling a rise in the average family's shopping bill of L750 a year.

Official figures showed wholesale food prices rose by 7.4 per cent in the past 12 months -- more than three times the headline rate of inflation.

The increase -- the highest since the Office for National Statistics (ONC) began keeping records in 1992 -- has driven the cost of a consumer's average basket of groceries up by 12 per cent in a year.

Experts said the rate of food price inflation was making life increasingly difficult for the millions of families already struggling to make ends meet under the weight of rising council tax bills, mortgage repayments and energy costs.

The inflationary pressures also make it less likely that the Bank of England will provide any relief by cutting interest rates next month.

Philip Hammond, the shadow chief secretary to the Treasury, said: "After 10 years of Gordon Brown's economic management, we are now faced with a classic squeeze. The economy is slowing down and at the same time inflation is rearing its ugly head again.

"We now have falling real take-home pay, soaring food and fuel costs, and rising commodity prices, which are made worse by the slide in the value of the pound.

"This is more bad news for ordinary families, who will find it harder than ever to make ends meet."

The figures reflect the prices grocery stores and supermarkets are paying for food, increases likely to be passed on to customers.

The increases are being driven by rising meat prices and global shortages in key crops, caused both by adverse weather and the demand created by China's rampant economic growth.

The prices consumers pay for their food will be shown in figures released, with some experts suggesting retail prices are rising even faster than wholesale ones.

Analysts at mySupermarket.co.uk, which tracks food prices, say the three biggest supermarkets -- Tesco, Asda, and Sainsbury's -- increased their average price for a basket of goods by 12 per cent last year, adding up to L750 to the average family's annual bill.

A poor summer last year forced up vegetable prices. A kilo bag of frozen peas at Tesco went up from L1.19 at the end of 2006 to L1.79 at the end of last year.

A 500g bag of parsnips cost L1.76 at Asda at the end of last year compared to 98p a year earlier, while Tesco has increased the price of 2.5 kilos of Maris Piper potatoes from L1.78 to L2.18.

A dozen free-range eggs from Sainsbury's rose from L1.62 to L2.35, and Asda increased the price of its orange juice from 73p a litre to 88p.

Meat prices are rising particularly quickly. The ONS said the price of beef, pork, and lamb products increased by 3.7 per cent in December alone.

Figures compiled by the Meat Trades Journal show the average retail price of English beef has increased by 14.9 per cent in five years. English lamb rose by 10.3 per cent.

Maurice Fitzpatrick, an economist at Grant Thornton, a financial consultancy, said the increases were "extremely unhelpful for consumers."

He added: "Common household costs like food and petrol are rising rapidly because of movements in world markets, which is unpleasant enough for consumers. But upward pressures are also restricting the ability of the Bank of England to cut rates and ease borrowing costs and stimulate a slowing economy."

The data showed that factory gate prices for manufactured goods as a whole are rising at their fastest rate for more than 16 years.

The 0.5 per cent rise last month brings the rate of inflation to five per cent in the year to December -- the sharpest increase since August 1991.

Johnny Stern of mySupermarket.co.uk said the big chains could choose not to pass rises in wholesale food prices on to shoppers.

"Prices of groceries go up and down all the time. The supermarkets need to decide if they want to pass prices increases on to the consumer."

After a decade and more of falling food prices, staples such as grain and meat are becoming more expensive around the world, as consumers in developing economies become richer and demand more food, especially meat.

China and India have led the surging demand. The average Chinese citizen now eats 110 pounds of meat a year, up from 44 pounds in 1985.

Global warming also plays a part. The failure of Australia's wheat harvest last year was blamed on climate change and many big grain-producing areas of the world are predicted to become arid and unusable in the years ahead.

The United Nations Food and Agriculture Organisation said global prices would go on rising, and could be 20 per cent higher in 10 years.

Food prices are not the only costs being driven higher by international economic turbulence.

Crude oil recently passed the $100 mark, which has led to soaring fuel prices in Britain. Aviation fuel rose by 11.6 per cent last year. Petrol products rose by 20.5 per cent, the highest since 2000, the year of national fuel protests.

Higher costs for airlines and freight companies can in turn increase the prices consumers pay for goods.

Some economists believe persistent inflation means consumers could face a double penalty, paying rising prices on the high street without the relief of lower interest rates.

"This may diminish speculation of more aggressive rate cuts because it shows companies can still pass on higher costs," said Kenneth Broux, an economist at Lloyds TSB.

Most City economists still believe the Bank of England Monetary Policy Committee will cut rates to 5.25 per cent at their regular meeting next month. But the figures have introduced a degree of doubt into that prediction.

The MPC is charged with keeping inflation at two per cent, but its official benchmark, the Consumer Prices Index, is above target at 2.1 per cent.

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