Pressure at the pumps fuels rise in food prices

Figures released today reveal a 1.1 per cent increase in food prices in March – the largest recorded jump since August 2010.

The rising food prices, the warm weather and the weak pound contributed to overall shop price inflation rising from 1.2 per cent in February to 1.5 per cent in March – a figure that is still below the official Consumer Price Index inflation rate of 3.4 per cent.

According to the figures produced by the British Retail Consortium (BRC), the rising food inflation was offset by a dramatic fall in non-food prices, which fell at their fastest rate for 28 months.

Cost-cutting promotions for items other than food, some of which has been introduced by shops to cope with the rival attractions of online shopping, played a key role in non-food deflation standing at 0.9 per cent in March, compared with 0.7 per cent in February.

Rocketing fuel prices mean that it has become far more expensive to replenish food stocks, which tend to require refilling more often than supplies of non-essential items.

The BRC pointed out that oil prices have traded above $110 a barrel since the beginning of January and are currently trading at $125 a barrel – a 13 per cent rise.

BRC director general Stephen Robertson said: “The cost of oil has shot up 11 per cent since the start of the year, and that’s driven up transport and manufacturing costs, increasing food inflation.

“Retailers are also shifting away from multi-buy reductions on specific items in favour of money-off coupons for an entire shop, giving customers more flexibility and producing savings on food shopping which don’t show up in this index.

“As a result, overall shop price inflation has edged up slightly, but remains well below the official consumer prices figure of 3.4 per cent.”

Offering an explanation for prices of other goods falling, Mr Robertson added: “Weak demand for many goods means retailers continue to battle hard for consumer spending by keeping prices down wherever possible. Non-food prices fell at their fastest for 28 months. Electrical goods and clothing and footwear experienced the biggest price falls, driven by widespread promotions.”

Leigh Sparks, professor of retail studies at Stirling University, suggested the unseasonably warm weather, which ended so abruptly at the beginning of the week, would have also contributed to rising food inflation.

Prof Sparks said demand for items such as barbecue food and ice-cream rose at a time when it was not stocked to maximum levels.

“When a product is out of season, it is a bit more expensive to supply it,” Prof Sparks said.

“There is also the transport costs. We buy food on a more regular basis than other products. Shops are replenishing food more often than non-food, and with the price of petrol going up, there is going to be more inflation than there is for non-food.”

Prof Sparks added: “It is still very tough for the consumers out there, and it will remain so for a long time.”

Mike Watkins, senior manager of retailer services at Nielsen, predicted that shops would continue to offer discounts in an effort to persuade customers to buy non-food items.

He said: “Consumers are having to cope with falling disposable incomes with fuel and household energy costs also increasing since the start of the year. With inflationary pressure continuing in the food supply chain, we can expect supermarkets to keep a strong focus on promotional activity over the next few months.

“Shoppers are following the deals and will continue to seek out the best value for money.”

Notable price rises in the fresh food category came from fruit, vegetables and convenience food, while breads and cereals and soft drinks pushed up inflation for food that can be stored for long periods.

In other goods, the clothing and footwear and electricals categories have consistently reported annual deflation, averaging 5.2 per cent and 4.5 per cent respectively, over the past three months.

Deflation in the clothing market has also been driven by the sharp fall in cotton prices, which are down 55 per cent year-on-year. Rising wages in manufacturing countries, which were being passed down the supply chain, have also begun to stabilise.

The growth in online shopping has also had an effect on prices. In 2005, online sales of electrical goods accounted for 9 per cent of total retail electrical sales. This figure has now risen to about 30 per cent.

High street retailers have had to cut prices and use promotions and discounts to compete with online retailers.

According to the BRC, the proportion of grocery spend on goods on promotion remains at about 34 per cent, just over one-third of grocery spend.

That figure has fallen from last year, and BRC said it was likely to reflect the shift by food retailers to promotions, which include straight discounts and money off petrol vouchers.

With surging petrol prices eating into disposable incomes, supermarkets are using discounts and promotions on fuel to entice consumers into stores.

Measures in George Osborne’s Budget are expected to put upward pressure on inflation. These include rising alcohol prices and the introduction of a 20 per cent VAT rate on food sold above “ambient temperature” .