Inflation at nearly twice Bank's target rate

 

The cost of feeding a family has soared by more than 10% in the last year, the highest rate for more than a quarter of a century.

Store checkout

High bills at till: consumers are feeling the pinch of the inflation rise in the supermarket

Shock inflation figures today revealed that a typical weekly food shop costs 10.6% more than last year. The last time food prices were rising in double digits was 26 years ago, in May 1982.

The Government's official measure of prices, the Consumer Prices Index, jumped from 3.3% to 3.8% last month, higher than City economists were forecasting. Prices are now going up at the fastest rate since May 1992.

The figures are a huge blow to the Bank of England's efforts to bring inflation under control and starkly illustrate how the global oil crisis is hitting virtually every household by forcing up prices.

It also means that any remote chance that the Bank might cut its base rate next month has now been crushed. The Bank's target is a 2% inflation rate.

City forecasters rushed to rewrite their predictions for the economy after the figures were released. Most had been expecting inflation to peak at around 4% in the autumn but some now fear it could hit 5%.

Jonathan Loynes, chief European economist at Capital Economics, predicted that at the current rate of inflation, CPI would hit 4.5% or 5% in the run-up to Christmas.

He said: 'We still think that inflation will drop back sharply next year, eventually freeing the way for deep interest rate cuts. But there is worse to come first,' he said.


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Today's figures show that some staples such as butter have gone up by almost a third in a year while bread, cheese and milk are almost a fifth higher. Food prices have been forced up by rising distribution costs, bad weather, including last summer's floods, and shortages caused by the rush to convert land to bio-fuel crops.

Although some goods, including clothes and CDs, are still falling, there is growing evidence that non-food prices are starting to rise. A survey by the British Retail Consortium showed the first rise in non-food prices on the high street since 2006. Carpets, books and restaurant meals are costing more.

However, most economists still see the rises as a temporary 'spike' caused mainly by oil rises rather than a move towards Seventies-style hyper-inflation. John Cridland, deputy director general of the CBI, said: 'The fact that the economy is slowing will bring inflation down, but not until next year.'

Inflation graphic

But unions bosses gave an ominous warning of potential conflict over the higher cost of living. TUC general secretary Brendan Barber said: 'With prices soaring in supermarkets and petrol stations, families are increasingly concerned at how they are going to make ends meet.

'Wages, particularly in the public sector, are falling further and further behind the cost of living, effectively leaving millions of workers to suffer a pay cut.' Bank of England Governor Mervyn King has sent a signal to employees by turning down a £100,000 pay rise and accepting an increase of only 2.5%, effectively a pay cut.

Shadow chancellor George Osborne attacked Mr Brown, accusing the PM of 'shrugging his shoulders' and doing nothing. 'The official figures have caught up with everyone's real experience of rising prices,' he said.

'Inflation is now more than double the rate that Gordon Brown inherited from the last Conservative government. What a contrast between Gordon Brown who shrugs his shoulders and says there's nothing he can do about it, and the Conservative Party which is putting forward an economic recovery plan.'

Food price inflation graphic
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