Food inflation at two-year high

In the latest set of data to deliver a blow to hard-pressed consumers, food prices rose by 6.4 per cent during May compared with a year before, a significant leap from the annual rate of 4.7 per cent witnessed during April.

The figures were released by the Office for National Statistics, which said that overall inflation – as measured by the Consumer Prices Index – remained unchanged at 4.5 per cent. The Retail Prices Index, which also includes the cost of housing, also remained unchanged at 5.2 per cent.

The headline rate masked big rises in food prices as transport costs fell sharply due to the timing of the Easter holidays. While many economists were relieved that the figure was not worse, they pointed out that this is the 17th consecutive month that the Bank of England has overshot the Government’s target of 2 per cent. They also gave warning the figure was likely to creep higher as the impact of higher gas and electricity bills start to take effect in the summer.

Individual shoppers have complained that their personal weekly grocery baskets have shot up in price by far more than the official figures suggest. Last week a half-loaf of Warburtons sliced white went from 60p to 93p overnight at Tesco – an increase of 55 per cent.

The baker said that it did not set prices and the move was entirely down to Tesco changing its prices. A spokesman for the supermarket said: “We held this price down as long as we could. Wheat prices have gone up 75 per cent since September.”

A series of difficult harvests combined with rising demand from China and India, whose consumers have adopted an increasingly Western diet, has been the main reason for the increase in commodity prices along with the recovering price of oil.

It is not just bread that has witnessed alarming increases in price. Many wheat-based products have also started to spiral upwards, as well as animal-based products, because of the substantial increase in the price of animal feed, which has started to filter down to supermarket shelves.

The average bag of fusilli pasta across four of the biggest supermarkets has gone from 64p a year ago to 86p now, an increase of 35.4 per cent.

A pack of English butter has gone from 93p to £1.21 and a 3.4lb pack of chicken fillets has gone up by 24.5 per cent to £4.65. Orange juice and onions have also witnessed huge jumps in price, according to MySupermarket, an website that monitors all the online supermarkets.

Inflation could hit 5 per cent or even 5.5 per cent, economists said, once the effects of higher gas bills come into force.

George Buckley, at Deutsche Bank, said: “If the sizeable rise in bills announced so far by one utility company is replicated by the others then inflation could end up topping 5pc over the summer, before falling towards the end of this year or early 2012.”

Capital Economics, a forecasting house, said that in the medium-term inflation could hit 5.5 per cent before settling back down next year.

Prices for electricity gas and water rose by 4pc or more in May after all the major suppliers put prices up over the winter. Scottish Power has said it will increase gas and electricity prices by 19pc and 10pc respectively from August 1.

The data reinforces concerns raised in a paper by the Institute for Fiscal Studies, which found that pensioners and less well-off families are being particularly hard hit by the shape of inflation as they typically spend a greater share of their income on food and fuel.

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