U.K. Food-Price Inflation Soars as BOE Begins Policy Meeting

U.K. food inflation accelerated to the fastest pace in 19 months in January, pointing to strengthening price pressures in the economy as Bank of England policy makers meet to set interest rates.

Food prices rose an annual 4.6 percent, up from 4 percent the previous month and the most since June 2009, the British Retail Consortium said in an e-mailed statement today in London, citing a survey by Nielsen. Overall shop prices increased 2.5 percent from a year earlier.

Non-food prices rose 0.1 percent on the month, which the BRC said indicates retailers absorbed the government’s increase in value-added tax in January. Still, the impact of the levy on consumers may only have been postponed as rising commodity costs push stores to raise prices. That would add to inflation, which has been above the Bank of England’s target for 13 months.

“Retailers generally took the hit on behalf of customers,” said BRC Director General Stephen Robertson, referring to the tax increase. “But with a range of other cost pressures also squeezing margins, retailers will struggle to go on absorbing it.”

The Monetary Policy Committee will probably hold the benchmark interest rate at a record low 0.5 percent after its meeting tomorrow, a Bloomberg News survey shows. Still, minutes of its Jan. 13 decision showed “most” members noted that medium-term risks had “probably shifted upwards.”

Inflation for non-food items accelerated to 1.3 percent in January from 1.1 percent in December, the BRC said. On the month, overall shop prices rose 0.6 percent, led by a 1.6 percent surge in food prices, the BRC said.

“Pressure on vital food commodities have come on the back of continued strong demand from emerging economies and poor harvests from major exporting countries,” the BRC said. That is “working its way through the supply chain to wholesalers and is now beginning to materialize in shop prices.”

To contact the reporter on this story: Fergal O’Brien in London at forbien@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net