UK food inflation pushes higher

British Retail Consortium and analysts Nielsen say high energy costs and threat of drought are pushing up grocery prices

Katie Allen; The Guardian, Tuesday 3 April 2012

http://www.guardian.co.uk/business/2012/apr/04/uk-food-inflation-higher-brc-neilsen

Hard-pressed British shoppers have seen no let-up in rising grocery prices, with high energy costs and the threat of drought pushing food inflation higher in recent weeks. It rose to 5.4% in March from 4.2% in February, according to the latest shop price index from the British Retail Consortium and analysts Nielsen.

There was some respite for shoppers from deflation in non-food prices of 0.9% – the biggest fall for more than two years, due largely to price cuts for electrical goods, clothing and footwear. But that was not enough to offset soaring food costs and overall shop price inflation came in at 1.5%, up from 1.2% in February.

The BRC highlighted an 11% jump in the cost of oil this year which has driven up transport and manufacturing costs, which contributes to food inflation.

Mike Watkins of Nielsen added: "Consumers are having to cope with falling disposable incomes, with fuel and household energy costs also increasing since the start of the year. With inflationary pressure continuing in the food supply chain we can expect supermarkets to keep a strong focus on promotional activity over the next few months."

Economists warn that droughts in parts of Britain could hurt harvests and put further upward pressure on food prices.

The latest official data on inflation last month showed that lower energy bills for many UK homes helped bring the consumer prices index down slightly in February to the lowest level in more than a year. But at 3.4% it was still higher than forecasts of 3.3%. The Bank of England's chief economist, Spencer Dale, warned at the time: "One obvious worry … is the possibility that tensions within the Middle East could escalate and put further upward pressure on oil prices."