Supermarkets talk up price cuts... but hike prices by 21%

By Daily Mail Reporter
Updated: 07:44 EST, 18 November 2008

Supermarkets have been accused of 'fattening up' their profits while claiming they are cutting prices for shoppers.

A study reveals the stores have imposed alarming price increases on staple foods, despite advertising discounts on popular items.

The annual rate of increase in the cost of a typical shopping basket leapt to 21.3 per cent in November  -  adding more than £1,100 a year to family grocery bills.

The Liberal Democrats said supermarkets had 'no excuse' for hiking prices at a time when their costs were coming down. Falling commodity prices mean they are paying less to stock their shelves  -  but customers are being hit with price hikes for weekly essentials.

Critics claim the 'big four' stores – Tesco, Asda, Sainsbury's and Morrisons – may be 'fattening up' their profit margins at the expense of hard-pressed customers and suppliers.

Yesterday, the Liberal Democrats said supermarkets had 'no excuse' for hiking prices at a time when their costs were coming down.

Lib Dem Treasury spokesman Vince Cable said: 'There is clear evidence that oil, food and commodity prices are falling around the world. These should be passed on by retailers.

'There really is no excuse for supermarkets to take advantage of the situation to fatten up their profit margins.'

Falling commodity prices mean they are paying less to stock their shelves – but customers are being hit with price hikes for weekly essentials.

Supermarket chains have seen a profits bonanza over the last 12 months. Sainsbury's last week revealed a 13.3 per cent hike in profits for the past six months.

Tesco, Asda and Morrisons have been doing just as well.

MySupermarket.com, which helped compile The Daily Mail Cost of Living Index, puts the annual rate of food and drink inflation at 6.2 per cent.

However the cost comparison site says it found 'drastic' increases on a small group of items bought by households every week.

It means a typical family's food bills shot up by 21.3 per cent this month.

In October the rate of increase was just 14.1 per cent.

A family spending £100 each week a year ago would have to find an extra £1,107 a year to put the same items on the table based on these figures.

This has fuelled suspicions that the stores are failing to pass on savings to customers.

But experts believe the latest inflation figures will be a watershed for the cost of living, heralding a wave up price cuts.

‘October looks likely to post something of a reversal,’ said Investec economist David Page, although Mr Page remains wary of the potential inflationary impact of the pound’s sharp recent fall against the dollar and the euro.

But after wrestling with rising inflation for a year, the prospect of deflation is now the major threat to rate-setters as prices fall in a looming recession.

More interest rate cuts are set to come on top of the bold 1.5 per cent slash to 3 per cent two weeks ago as the Bank of England’s latest forecasts show it undershooting its 2 per cent inflation target by more than 1 per cent if rates are held at current levels.

Bank Governor Mervyn King last week said it was ‘very likely’ that the wider Retail Prices Index measure will turn negative next year as mortgage payments fall.

Deflation is a serious threat because consumers and businesses can defer spending in expectation of falling prices, hitting the economy.

Prime Minister Gordon Brown told the Commons yesterday: ‘Next year, the problem is deflation and the problem of inflation close to zero.’

IHS Global Insight economist Howard Archer expects CPI to stand at just 0.5 per cent next year.

‘Inflation is poised to drop like a stone over the coming months due to lower oil, commodity and food prices, very favourable base effects and rapidly diminishing underlying inflation pressures,’ he said.