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Family budgets set to rise again as production costs climb at fastest pace for more than 20 years
Last updated at 09:22am on 13.05.08
Soaring food prices have sent household bills rocketing
Soaring petrol costs, Budget tax hikes on alcohol and tobacco as well as rising steel scrap prices pushed up output prices 1.4 per cent between March and April, according to the Office for National Statistics (ONS).
This is the highest monthly increase since records began in 1986 - likely to fuel inflation concerns among Bank of England policymakers and jolt hopes of interest rate cuts.
The price hikes lifted the annual rate of increase to 7.5 per cent in the 12 months to April - also a record - as surging food product costs added to the pressure.
Most economists expect rates to fall to 4.75 per cent next month, but the gloomy figures add to fears that the Bank's hands will be tied by its inflation-watching mandate.
Howard Archer, chief UK economist with Global Insight, said: "This raises serious questions as to whether the Bank will be willing to cut interest rates as soon as June despite current signs that the economic downturn may be deepening and widening."
Meanwhile, millions of families are having to spend almost £1,000 a year extra on food after more punishing price rises.
The annual increase in the price of a basket of essentials surged to 19.1 per cent in May, according to the Daily Mail Cost of Living Index.
The rate has jumped alarmingly from 15.5 per cent in April – a 3.6 per cent rise – and there is no sign of the pressure easing.
And Factory gate prices surged at their fastest pace since records began more than 20 years ago during April, official figures showed today.
Soaring petrol costs, Budget tax hikes on alcohol and tobacco as well as rising steel scrap prices pushed up output prices 1.4 per cent between March and April, according to the Office for National Statistics (ONS).
This is the highest monthly increase since records began in 1986 - likely to fuel inflation concerns among Bank of England policymakers and jolt hopes of interest rate cuts.
The price hikes lifted the annual rate of increase to 7.5 per cent in the 12 months to April - also a record - as surging food product costs added to the pressure.
Most economists expect rates to fall to 4.75 per cent next month, but the gloomy figures add to fears that the Bank's hands will be tied by its inflation-watching mandate.
Howard Archer, chief UK economist with Global Insight, said: "This raises serious questions as to whether the Bank will be willing to cut interest rates as soon as June despite current signs that the economic downturn may be deepening and widening."
There is now a worldwide crisis over supplies of key crops such as corn, wheat and rice. It has triggered food riots in some countries. And in the UK it has brought the biggest rises in bills in a generation.
A family which spent £100 a week on food last year now has to find another £19.10 for the same products, equivalent to £993 a year. Once "must-pay" bills for petrol, mortgages, power and council tax are added, the extra cost is more like £2,200.
Yet the official inflation rate is just 2.6 per cent. Experts say a worldwide drive to produce biofuels – made from corn, wheat and soya as an alternative to oil – is a major factor.
Farmers have switched from food production to biofuel crops.
Last month, the EU agreed the biofuel content of all petrol and diesel should be 2.5 per cent.
This is set to rise to 10 per cent by 2020. But the Government's two most senior scientists, Professor John Beddington and Professor Robert Watson, have called for a rethink on the rush to biofuels.
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Professor Beddington said: "It's very hard to imagine the world growing enough crops to produce renewable energy and at the same time meet the enormous demand for food."
Gordon Brown is understood to be preparing to call on the EU to scrap the plan.
The effect of biofuels on food prices has been dramatic. A litre of corn oil has more than doubled in a year, to £1.38, in one of the big supermarkets. Fusilli pasta, made from wheat, is up 81 per cent, a baguette by 41 per cent and Weetabix cereal 21 per cent.
Farmers are also facing huge increases in feed bills, leading to dearer meat and dairy products. Milk is up 16.6 per cent, English butter by 62 per cent and mild cheddar by 25.6 per cent.
Free-range eggs, which come from hens fed a corn mix, have leapt in price by an alarming 47.4 per cent in a year to £2.58 a dozen.
Basmati rice is up more than 60 per cent in 12 months and Britain's biggest supplier, Tilda, has warned of a further rise of around 30 per cent in the coming year.
Chancellor Alistair Darling has called on his EU counterparts to take radical steps on food prices. He wants "fundamental reform" of the controversial Common Agricultural Policy.
The soaring price of oil is the second major factor battering consumers. Figures from the AA show the cost of diesel has risen by a quarter in the past year, while unleaded petrol is up 15.4 per cent.
The organisation says motorists are the victims of international oil speculators and UK taxes.
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Spokesman Luke Bosdet said: "The oil companies tell us there is no shortage, but market speculators are having a field day gambling on prices.
"It is a pantomime. The Government is threatening to add another 2p in duty in October. We think the Chancellor needs to announce as soon as possible that this will be postponed."
The higher price of oil is dragging up the cost of both gas and electricity.
Householders who have seen a 15per cent increase so far this year face another 25per cent rise by September.
The Daily Mail Cost of Living Index is compiled in association with the price comparison websites MySupermarket. co.uk and uSwitch.com.
MySupermarket offers price comparisons across the big three chains – Tesco, Asda and Sainsbury's.
Many families, however, are changing to budget stores such as Aldi, Lidl and Netto.
Sales of fresh produce at Aldi are up a remarkable 40 per cent year-on-year. The Government's official inflation rate, the Consumer Prices Index, is expected this week to put inflation at around 2.6 per cent.
The Office for National Statistics argues that falls in the price of electrical gadgets, clothes and furniture offset the increases in food. But critics say that fails to reflect real life.
Tim Wolfenden of uSwitch said: "Consumers must be feeling like the rug is being pulled out from under their feet. Every time they regain their balance another set of price hikes knocks them over again.
"However you look at it, 2008 is shaping up badly for British consumers."
Reader views (7)
Here's a sample of the latest views published. You can click view all to read all views that readers have sent in.
Neil from London - Talking about flushing things down the toilet... Perhaps someone in Westminster would do just that to the present Cabinet and the whole of nasty New Labour government?
- Fraser, Telford Park
But we keep being told that inflation is only 2%.
- M Wood, Somerset UK
If we all just refuse to pay tax for one month we can change the world. Remember - this government's illegal wars are costing each and every one of us half our wages. Why do we tolerate it? Why not just break the system in half and flush it down the toilet where it belongs?
- Neil, London uk
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