Retailers on defensive as food bills soar 12%

FOOD prices have soared by 12.6 per cent in the last 12 months to an 11-year high, the latest survey of Britain's four largest supermarkets shows.

The cost of 100 staple products has increased by an average of more than £22 to nearly £200 since June 2007, according to the Grocer magazine's weekly price index.

The items included are kept secret, but supermarkets have admitted the prices of basic foods such as bread, milk, eggs and butter have increased.

The British Retail Consortium (BRC) said its own figures, and those of the government, showing a 6 to 9 per cent year-on-year food price increase were more accurate. Sainsbury's put the figure at 3 per cent.

The BRC added that British consumers were spending the least on food in the European Union, and it accounted for the smallest proportion of their income for 50 years.

The Grocer Price Index increased last week to £199.40 compared to £177.14 last June. It showed that Sainsbury's recorded the smallest increase, of 10 per cent to £200.42. By contrast, the Tesco total rose the fastest, by 15.6 per cent to £200.07.

The magazine did not publish figures for the other two major supermarkets, but it listed Morrisons' total the previous week as £197.61, and Asda as cheapest at £196.21.

The Grocer said the "big four" appeared to have been successful at controlling prices earlier in the year. However, increases in fuel and ingredients' costs had accelerated, leading to the supermarkets' prices rising by an average of nearly 1 per cent last week alone.

The government's Office for National Statistics reported last week that food price inflation increased to 8.7 per cent in May – up 1.5 per cent on the previous month. It said the increase was mainly due to spiralling meat costs, which more than doubled from 4.1 per cent in April to 8.8 per cent in May.

Vegetable prices also rocketed, from 3.8 per cent in April to 7.2 per cent in May.

Richard Dodd, a spokesman for the British Retail Consortium, said its own food price check on 500 items had shown a 6 per cent year-on-year increase last month. He said: "Food prices are going up, but the Grocer's 12 per cent is above anybody else's measures.

"Retailers are doing an enormous amount to absorb the impact of rising costs as much as they can, against a background of world agricultural prices going up by 60 per cent.

"Food prices in shops are not going up by anything like that."

Mr Dodd said European Commission figures showed British shoppers were spending just 9.5 per cent of their income on food – the lowest in the EU. He attributed this to intense competition between retailers. The food spend was also the lowest proportion of income for 50 years.

Mr Dodd said: "We are seeing increases in food prices, which are significant for people, but over the long term, the cost of food has fallen."

Justin King, the chief executive of Sainsburys, said: "Where inflationary pressures are genuine and are connected to commodities, you are seeing those prices move.

"That's why you can see the retail prices of butter, milk, eggs, flour and bread move, but for every bit of bad news you can see a bit of good news."

Don't expect pay to match inflation, says Chancellor

ALISTAIR Darling has called for below-inflation pay rises across the board in an attempt to avert spiralling prices.

The Chancellor acknowledged that the year ahead would be "difficult" and warned people not to expect their salaries to rise as fast as prices.

His comments echo those of Mervyn King, the Governor of the Bank of England, and come after inflation leapt to 3.3 per cent. There are fears that it could hit 4 per cent. Mr Darling has appealed to firms to not stoke inflation with high pay increases. He said that they must be "consistent with our inflation target of 2 per cent".

"From the boardroom to everyone, public and private alike, the last thing any of us wants is to get into the situation in the 1970s and 1980s, for example, where you simply lost out because, whatever your pay increase, it was simply eaten up by the prices in the shops."

Last week, Mr King was forced to write a letter to Mr Darling explaining why inflation had risen more than one percentage point above the 2 per cent target.

Mr Darling insisted inflation was being fuelled by global pressures on food and oil, but warned against getting into a vicious circle in the UK.