Transport costs rise by record 7% as food prices soar at fastest rate for 17 years

By Sean Poulter for the Daily Mail
Updated: 08:00 EST, 15 April 2008

• Food bills rising fastest since 1991
• Families must find extra £1,500 a year to stand still
• Official figures show inflation held steady at 2.5%
  
• Crude oil hits new record high

Families already struggling to cope with the credit crunch face huge increases in food bills because of global shortages.

With the international cost of cereals up by almost half in a year, British meat and dairy products have soared in price.

Costs are rising faster than at any time since 1991 and the average shopping bill is likely to go up by £600 a year. 

Added to the impact of higher charges for mortgages, heat, light, water, petrol and council tax, the average family is likely to have to find an extra £1,500 a year, just to stand still.

The increases are a severe worry for the Government and the Bank of England because they threaten to blow apart efforts to cap inflation.

Consumer inflation has so far held steady, remaining at 2.5 per cent in March, figures from the Office for National Statistics said today.

The figures, although the highest level in nine months, was slightly below forecasts.

Retail Prices Index inflation, which includes mortgage interest payments, fell to 3.8 per cent, from 4.1 per cent in February.

But there was more woe after the price of oil hit a new record after supply was disrupted in the U.S. and overseas.

U.S. light, sweet crude oil rose 72 cents to $112.48 a barrel, above the previous record of $112.21.

Brent crude rose 41 cents to $110.25 a barrel in London.

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The Prime Minister will today call for urgent international action to tackle both food prices and turmoil in financial markets.

The Bank is under pressure to make big cuts in its base rate to boost an economy which is slowing rapidly. But such cuts could fuel damaging price rises by raising the cost of imported goods.

Figures to be published today are expected to show the current Consumer Price Index rate of inflation of 2.5 per cent has risen again  -  putting it well above the Bank's official target of 2 per cent.

And official data released yesterday by the Office for National Statistics revealed that input prices, the amount factories pay for raw materials, rose by a record annual rate of 20.6 per cent in March.

The price they pay for UK-produced food rose by 33 per cent, while the slaughter price of animals produced on farms in this country rose by 16.8 per cent.

Output prices, the figure charged by manufacturers for all goods, rose by 6.2 per cent, which is the highest annual increase for 17 years. The output price of food was up by 8.5 per cent.

These prices are now rising at their fastest rate since 17 years ago, when there was a recession driven by sky-high inflation and interest rates.

Economist Howard Archer, of Global Insight, said: 'This is a pretty horrid set of data that will not go down at all well at the Bank of England.

'The Bank cannot afford to relax on the inflation front and this suggests that it continues to have limited scope to cut interest rates  -  for now, at least.'

Economist David Page of Investec described the figures as 'pretty ugly'.

Worldwide food shortages have been caused by increased demand from countries such as China and India, together with poor harvests linked to droughts and floods.

A decision by farmers to turn over their land to the growing of biofuels is also a factor.

While biofuels have been presented as the solution to global oil shortages, they are now contributing to a lack of food.

Some countries have suffered food price protests, while a number of nations are imposing limits on exports to protect their own supplies.

The big question for British shoppers surrounds the extent to which supermarkets and other retailers will pass on the price increases.

While profits will suffer if they swallow the rises, sales will inevitably fall if they pass them on.

Research by the website MySupermarket.co.uk suggests the price of an average shopping basket is up by 11 per cent on a year ago

Before the latest increases, its experts calculated that a family spending £100 a week on groceries a year ago would now have to pay an extra £572 a year.

It seems likely that this annual figure will now go up by more than £600.

The website's surveys show that some types of bread are up by 33 per cent, pasta by 80 per cent and rice by 32 per cent.

Inflation: The price of rice has soared by 75 per cent in just two months

Many animals are fed on expensive crops such as wheat, corn and soya.

As a result, eggs are up around 40 per cent, chicken by more than 70 per cent and beef by more than 60 per cent.

The heads of both the International Monetary Fund and World Bank have sounded the alarm.

IMF chief Dominique Strauss-Kahn warned that spikes in food costs around the world could lead to shortages and the toppling of governments.

'We are facing a huge problem,' he said.

'Hundreds of thousands of people will be starving. Children will be suffering from malnutrition, with consequences for all their lives.'

The head of the World Bank, Robert Zoellick, urged immediate action to deal with rising food prices.

He said the international community has 'to put our money where our mouth is' and act now to help hungry people.

'It is as stark as that.'

Countries such as Mexico, Haiti and parts of Africa have seen protests over the shortage of staple foods.

Many have imposed price controls, while India has banned some rice exports to conserve supplies.

Today Gordon Brown will say: 'Oil, coal and gas prices are up 60 per cent, wheat and rice prices have doubled pushing total world food prices up 45 per cent and global food reserves are at their lowest level in 30 years.

'That is why I have been calling for urgent action on an international strategy for food prices.'

Mr Brown wants the International Monetary Fund and national governments to step up aid and trade with Third World countries to boost food production.

He said yesterday that 'every effort of mine, every day that I wake up' is about steering the economy away from recession.

He added: 'At every point, whenever there were world downturns, people ask the question, can the British economy come through this?

'I understand that people ask the question.

'But we are on the side of the homeowner and the business owner.'