Price of eggs and butter up by more than 30 per cent as food bills rocket

The cost of feeding a family is now going up faster than at any time since 1980, hugely exacerbating the credit crunch burden on households.

Today's inflation figures show that the headline rate hit 4.7 per cent last month, the highest level since Labour came to power and the fastest rise in the cost of living for 16 years.

The surge in the Consumer Prices Index triggered a letter from Bank of England Governor Mervyn King to Chancellor Alistair Darling blaming " sharp, largely unanticipated" increases in energy and food prices.

Food inflation increased from 13.7 to 14.5 per cent with some kitchen essentials such as butter and eggs soaring by more than 30 per cent.

Mr King wrote: "The expected peak in inflation this year is likely to be significantly higher than anticipated in June: the Committee now expects inflation to peak soon at around five per cent."

Food prices have been forced up by the record oil price, which feeds through to the cost of fertiliser and distribution, poor harvests and soaring demand from countries such as China and India.

A study of supermarket prices found all food and drink sold at Asda, Tesco and Sainsbury's has gone up by 5.9 per cent in the past year.

But a basket of 24 staples selected by comparison website mysupermarket.com revealed they cost 20 per cent more than 12 months ago. The biggest increases were garden peas (90 per cent) and basmati rice (111 per cent).

Johnny Stern, managing director of mysupermarket.com, said: "This month shows an overall rise in prices of 5.9 per cent, within which our staples have risen at nearly four times the rate."

But Asda boss Andy Bond said he believed food price inflation had now topped out. He said: "I'm confident that food price inflation has peaked."

City economists agreed saying there was hope today's figures suggested inflation is close to its peak. The Retail Prices Index, which includes property cost, dropped slightly from 5 to 4.8 per cent.

Jonathan Loynes, chief European economist at forecasters Capital Economics, said: "The CPI will go up in September but it should go down after that. It will come down slowly at first and probably remain above four per cent until next spring. But then it should fall very sharply."

The fall in the oil price, from a peak of $147 a barrel in July to less than $100, means petrol prices have already come down. If the oil price stays low energy bills could be reduced over the winter.

Any sign inflation has peaked will give the Bank of England "wriggle room" to start cutting its base rate.

Economists are hopeful that the Bank's first cut will come in November followed by successive reductions.