by Michael Smith (Veshengro)
Food price inflation in the UK could be described as unfair or excessive, so says a new report by the leading investment bank UBS.
And a formal government-led food price inquiry could be sparked by the behaviour of supermarkets in raising their prices above and beyond what is justified by inflationary pressures, warns the UBS report.
Commodity price inflation over the past few months would justify a 3pc to 3.5pc increase in processed food prices, but supermarkets have increased prices by 6pc to 6.5pc, according to the bank.
UBS economist Paul Donovan, who co-wrote the report, said: “That suggests there may be margin expansion in the supermarket sector. “Prices are rising in excess of justifiable cost increases.”
He added that price increases by supermarkets were adding 0.3 to 0.5 percentage points to the official consumer prices index of inflation, currently at 4pc.
The research also showed shoppers were seeing steeper rises in food prices than most other members of the Organisation for Economic Cooperation and Development (OECD).
According to UBS, food prices in Britain have been rising at an annual rate of 4.9pc, compared with a Eurozone average of 1.8pc. A weak pound had contributed to the UK increase, but the scale of inflation had made Britain the OECD country “most vulnerable” to political interference.
“UK food prices are rising more rapidly than most other OECD economies’ food prices, and have significantly outstripped food retailers’ cost inflation.
“This could allow UK politicians to suggest that food price inflation is ‘unfair’ or ‘excessive’.”
A British Retail Consortium spokesman said: “There is no question that grocery prices in this country are still lower than most other European countries because of our intensely competitive supermarket industry. Food prices have not risen at anything like the same rate as commodity prices. “It is clear that supermarkets are
shielding customers from the full impact”, he said.
They are? Really? The BRC spokesman lives in cloud cuckoo land and I am wondering which planet he, and so many politicians, are on. More like a parallel universe even.
Prices in supermarkets have been going through the roof on some goods while others that have remained more or less constant, such as milk, are as a result of the supermarkets squeezing the farmers. Most of them, regardless of what they may claim, do not absorb the increases, so let's no pretend.
Maybe people also have to learn that they may have to do with supermarket own brand ranges and especially their value ranges such as Sainbury's Basics and Waitrose's Essentials ranges. Cheaper cuts of meat and less meat also will help the consumer to balance the food budget.
Aside from rising prices the Great Recession has not gone anywhere and the warnings from Mervin King, the governor of the Bank of England, are a timely reminder, I should think. Let's listen to him for he does state that it may get worse still and that we may never be able to return to the standard of living that we have enjoyed over the last for decades or so.
© 2011
