Food and gas bills soar as suppliers blame costs

Food inflation hit a 23-month high in May - and there are fears that Scottish Power's huge price hikes could spark a trend...

by James Taylor
Last Updated: 19 Aug 2013
Cash-strapped consumers and Bank of England inflation-watchers look away now: the British Retail Consortium said today that food price inflation jumped to 4.9% last month, the highest figure since June 2009. Scottish Power has also just hiked its average gas and electricity prices by 19% and 10% respectively - a move that will inevitably embolden other providers to do the same. You don't have to be a genius to work out that CPI inflation is only going in one direction in the next few months...

To be fair to suppliers, they're seeing their costs soar, too; the BRC said wheat prices were up a whopping 72%, while oil was 50% more expensive than this time last year - the BRC said this was down to dry weather (unusual for them, they're normally complaining about the rain) and higher demand from places like China. And inevitably, this extra cost is being passed on - at least in part - to consumers, in the form of higher prices.

Not that this will assuage Scottish Power customers, whose gas bills are set to go up at four times the current rate of inflation; the company itself admits that the average household on a dual fuel tariff will see their bills increase by £175 a year as a result. The fear is that where one energy company goes, the other five tend to follow (not that we're suggesting they're acting in cartel, you understand) – and if they do, pressure group Consumer Focus reckons it will push half a million households into fuel poverty, with pensioners likely to be hit hardest. The company insists its own costs have risen by 30% since its last increase, and that it has avoided hikes for as long as possible. But this is likely to fall on deaf ears.

On this morning’s Today programme, one analyst warned that utility bills alone would be enough to keep inflation at its current level; throw in higher food price inflation too, and it's clear which way the wind is blowing. To be fair, the Bank of England warned us this would happen: it thinks inflation will hit 5% this year before falling back towards its 2% target. The first bit certainly looks likely, though the jury's still out on the second bit.

The other inevitable consequence of higher prices, of course, is reduced demand. The BRC said yesterday that high street sales were down 2.1% in May, as customers cut back on the shopping. And when that's happening, the chances of the UK economy enjoying a sizeable rebound look slim, to say the least. As may we all, if food prices keep climbing at this rate.

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