Macroeconomics

Inflation fear as new price warning sounded

By Adrian Lowery

5 January 2011, 3:54pm

http://www.thisismoney.co.uk/news/article.html?in_article_id=520816&in_page_id=2

UK consumers today received the latest in a string of New Year warnings that shop prices could surge in the coming months.

The United Nations' food agency revealed a record high for its food price index in December, and announced that the price of corn, wheat and other grains is set to go much higher.

The warning comes on the heels of figures yesterday showing that the cost of basic commodities used by UK manufacturers - such as cotton and wheat - is now rising at a pace not seen for at least two decades.

The Chartered Institute of Purchasing and Supply revealed that input price inflation - the costs involved in producing finished goods, including energy and raw materials - in December shot to the highest level since its manufacturing survey began in 1992.

UK households have already been hit by eye-watering increases in petrol prices and rail fares in the New Year, as well as the VAT hike.

The UN's data will add to fears among analysts and consumers in the UK that inflation is about to run out of control and force the Bank of England into an interest rate rise - just at a time when most British households and business can ill afford it.

The Bank's monetary policy committee stands accused in some quarters of allowing inflationary pressures to build up in the economy.

Many economists predict that UK inflation will smash through 4% this spring - twice the Bank's target level - after hitting a six-month high of 3.3% in November.

The Food and Agriculture Organisation's food price index, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, averaged 215 points last month, up from 206 points in November.

That level, fuelled by soaring sugar prices and strength in cereals and oilseeds, was the highest since records began in 1990,...