Note of caution from BRC as food price inflation hits two-year low

Food prices have gone further off the boil, providing the Bank of England with additional scope to fire up the economy.

Figures out today show that promotions linked to a summer of big events, including the Olympics, have combined with falls in commodity costs to push prices lower.

According to the British Retail Consortium (BRC), the annual rate of food inflation fell to a two-year low of 3.1 per cent last month from 3.5 per cent in June. Deflation in non-food items was unchanged at 0.3 per cent, pushing the overall rate of shop price inflation down to 1 per cent from June’s 1.1 per cent.

Stephen Robertson, the BRC’s director-general, said that the fall was “helping to narrow the gap between living costs and wage increases”.

He added: “Extra promotions, particularly linked to party food and this summer’s big events, are combining with past falls in commodity prices, which are working their way through to shop prices.

“But the relief may not last. Poor harvests, especially of corn and wheat in the United States, are creating a build-up of inflationary pressure.”

Mike Watkins at market research outfit Nielsen, which helped compile the report, added: “We expect consumers to still be cautious about big ticket or discretionary spend, which is why there is no upward pressure on non-food prices.”

Bank of England policymakers meet tomorrow and are widely expected to sit on their hands. However, falling inflation provides scope to print more money if the economy continues to falter.