Inflation at six-month high as food prices jump

By James Thompson

March 5, 2009

The soaring price of fresh meat drove overall UK shop price inflation to a six-month high in February but economists do not expect the rise to influence the Bank of England's decision on interest rates today.

The British Retail Consortium (BRC) revealed that food price inflation jumped to 9 per cent last month from 7.5 per cent in January, which pushed up overall shop price inflation to 1.9 per cent a year. While February's overall figure is still only half of last year's peak of 3.8 per cent, recorded in August, it is substantially higher than last year's low of 0.5 per cent in December.

"Increasing farm-gate prices for fresh meat drove food inflation to its highest rate since September. The weak pound has made UK produce more attractive for overseas buyers, restricting supplies at home and pushing prices up," Stephen Robertson, the BRC's director general, said.

In February, the annual price inflation of fresh food jumped to 10.2 per cent from 8.4 per cent in January; the rising price of fresh meat accounted for the bulk of the increase. Cattle, sheep and pig prices have jumped by 19 per cent, 38 per cent and 75 per cent respectively over the past 12 months.

The weak pound was also behind a slowdown in the fall of non-food prices, which dropped 1.7 per cent in February after falling 2.1 per cent in January. "Non-food goods, especially electricals, continued to be cheaper than a year ago but prices fell more slowly as exchange rates increased the cost of imports and some discounts ended," Mr Robertson said. Most economists expect the Bank of England's MPC to cut interest rates from 1 per cent to 0.5 per cent today, as the economy remains mired in recession. Howard Archer, the chief UK and European economist at IHS Global Insight, said: "This [rise in shop inflation] is most unlikely to deter the MPC from cutting interest rates again tomorrow and announcing its intention to start quantitative easing."