Food price rises prompt soaring shop inflation

6th July 2011

Food inflation rose to 5.7% from 4.9% – the biggest rise since May 2009 – while non-food inflation rose to 1.3% from 0.8%, according to the British Retail Consortium (BRC).

"Overall shop price inflation is being driven by surging world commodity prices, the effect of the weak pound on import costs and higher VAT – all beyond retailers' control," said BRC director-general Stephen Robertson.

The BRC predicted that there would be further upward price pressure, especially on the cost of non-chilled goods, due to higher grain prices and second-round effects from wage rises in commodity-exporting countries, adds Sky News.

Shop prices rose by 2.9 per cent in June compared with a year ago, says This is Money, according to the BRC.

The Consortium added that the figures highlight the squeeze currently in progress on both household incomes and retailers.

Shops are having their hands forced, with growing use of discounts to generate sales at the expense of profit margins.

The BRC said some 39 per cent of grocery spending is now on goods on promotion, which shows 'there are lots of offers available' and 'savvy shoppers are taking advantage to minimise the impact on real-life bills'.

This is despite the price of corn being at its lowest for 15 years at the start of this month. So is this an anomaly? Or was there a good underlying reason for the fall?

Michael Baxter from The Share Centre comments: "I think it was the latter, and this may – just may – be a sign that inflation is only a few months away from seeing a very big drop, perhaps going negative by this time next year…

"…US producers have done what economic theory said they should do, and reacted to high prices by finding ways of increasing supply.

"But I think this story is just the first in a series of this type that we will see. Food is so expensive at the moment that producing it now has the potential to be a lucrative business. Land will be freed up everywhere, and food production will rise."

To receive our free weekly email sign up here.   

Leave a Reply

Your email address will not be published. Required fields are marked *