Food and drink costs surge by 4% as other goods drop in price

THE cost of food is continuing to rocket, despite overall shop price inflation falling to its lowest level since August 2010.

New figures from the British Retail Consortium (BRC) showed that the cost of goods increased by just 1.7 per cent in December compared with the same period in 2010, driven by price cuts in electrical goods, clothing and footwear.

But the cost of food rose by 4.2 per cent over the year, as commodity prices continued to rise, pushing costs higher particularly in ambient – tinned and packaged – food products.

The price of drinks, both soft and alcoholic, were significantly higher over the period, driving the rate of inflation.

Non-food inflation, in items such as clothing, household goods and DIY products, is at a two-year low, falling to 0.3 per cent.

Four out of the five inflationary categories reported slowing inflation in December, particularly health and beauty, which reported its lowest inflation rate since September 2010.

However, the BRC warned that the level of food inflation may actually have been exaggerated, due to a high number of promotions and multi-buy discounts, which are not counted in the official figures.

“This is a good bit of new year news for customers,” said Stephen Robertson, BRC director general. “Even before the impact of last January’s VAT rise comes out of the year-on-year comparisons, shop price inflation has reached a 16-month low of 1.7 per cent.

“The government’s official measure of inflation is running at nearly 5 per cent as businesses and householders battle with soaring utility and fuel bills.

“In this climate, retailers deserve credit for keeping costs down. Stiff competition throughout the sector resulted in a blizzard of promotions and discounts ahead of Christmas, which will have been a particular help to families facing falls in their disposable incomes.”

Commodity prices are now believed to be falling slightly, although it may take some time for that to work through to the supermarket shelves.

Mike Watkins, senior manager of retailer services at Nielsen, which co-authored the report, said: “Non-food inflation slowed considerably in December, particularly in clothing, footwear, electrical and health and beauty as seasonal discounts kicked in much earlier than in recent years. With shoppers needing to save money, retailers reduced prices ahead of the traditional post-Christmas sales period.

“And while food prices were up very slightly, food inflation is now back to the level of 12 months ago, after much higher rates during the summer, with supermarkets having to work even harder to encourage cash-strapped customers to shop.”

The Bank of England expects overall inflation, which currently stands at 4.8 per cent on the Consumer Price Index measure, to fall back by between 1.5 and two percentage points in the first three months of this year.

However, the BRC’s report warned that the UK’s reliance on food imports from the eurozone could mean further inflation in the coming months.