Supermarket price war hits food inflation

Tim Wallace
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THE PACE of price rises slowed slightly last month as the supermarket price war cut inflation and petrol prices fell, according to data from the Office for National Statistics, but the cost of living is still soaring relative to wages.

Consumer prices (CPI) rose by 4.8 per cent in the 12 months to November, down from five per cent the month before.

The Bank of England’s Spencer Dale (pictured) said inflation should fall close to three per cent by March and reach two per cent by the end of 2012, saying there is still room for the Bank to extend its quantitative easing programme if further monetary loosening is required.

The cost of living, on the retail price index (RPI), rose 5.2 per cent, down from 5.4 in the year to October. Once taxes are included, the tax and price index rose 4.8 per cent in the 12 months to November, compared with 5.1 per cent previously.

Supermarket price wars and a good harvest brought food price inflation down from 5.3 per cent in the year to October to 4.7 per cent in November. Bread prices fell 2.3 per cent in one month, and vegetables fell 1.5 per cent.

Petrol prices fell 1p per litre in the month and rail fares fell 1.1 per cent, leading a 0.2 per cent fall across the travel and leisure sector.

Despite the fall in headline inflation, real wages are still falling sharply.

“Households’ spending power is falling by around 2.5 per cent a year in real terms,” said Andrew Goodwin, economist at Ernst and Young’s Item Club.

“However, with inflation set to slow sharply, this should reverse by the end of next year.”