Commodities drive surge in food inflation

FOOD price inflation surged to its highest level in more than a year as rising commodity prices fed through into the supermarkets, the British Retail Consortium (BRC) will say today.

The BRC’s monthly shop price index shows that annual food inflation increased to 3.8 per cent in August from 2.5 per cent in July, the highest level since July 2009. In contrast, non-food inflation slowed to 0.5 per cent on a year earlier.

Stephen Robertson, director general of the BRC, said: “Past rises in the cost of global commodities, such as wheat and sugar, are filtering through to food prices. In response, retailers are offering more deals with milk and bread particularly competitive battlegrounds.”

However, he added that food price inflation is nowhere near the return of the double-digit food inflation of two years ago.

Although non-food inflation eased in August, the BRC anticipates a pick up in prices in the coming months. “Over the coming months, we expect non-food inflation to experience weak downward pressures, but remain relatively stable, as competition among retailers intensifies in the run-up to Christmas,” the BRC said. It added: “With the new 20 per cent VAT rate coming into effect in January, non-food inflation is likely to rise sharply in the first quarter of 2011.”

Nonetheless, with a third of groceries already on promotion and consumer demand likely to remain lacklustre, the BRC expects retailers to continue to use discounts and promotions to drive sales in the coming months, keeping shop price inflation low.