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Raw materials continue to push prices up

Published 08/06/2011

Food bills increased at the fastest pace in nearly two years last month as volatile commodity prices continued to lift the cost of living in the UK.

Food inflation hit a 23-month high of 4.9% in May, up from 4.7% in April, according to the British Retail Consortium (BRC).

The rising costs of raw materials - wheat was up 72% and oil was 50% higher - have been driven by dry weather and demand from emerging markets such as China.

Elsewhere, overall shop price inflation slowed to 2.3% in May from 2.5% in April as weak UK demand saw non-food inflation, on items such as clothing and electricals, slow to 0.8% from 1.2%.

Policymakers at the Bank of England have been faced with soaring inflation in recent months with the consumer prices index rate hitting 4.5% in April, its highest level in two-and-a-half years.

The Bank expects inflation to hit 5% this year before falling to the Government target of 2% but further rises will prompt calls for an interest rate hike.

However, the Bank is unlikely to act as official figures and surveys indicate the economic recovery in the UK is faltering.

Stephen Robertson, BRC director general, said: "Recent volatility in the cost of key commodities, linked to dry weather and global demand, is now working through to the shop price of some food.

"But even though the VAT rate went up 2.5% in January, non-food goods are less than 1% higher than last year - reflecting weak demand and retailers' need to use promotions and discounts to generate sales."

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