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Warning over supermarket price rise

Supermarkets in the UK are raising food prices faster than inflation, risking another competition inquiry, investment bank UBS has warned.

Commodity price inflation over the past few months would justify a 3% to 3.5% increase in processed food prices, but supermarkets have increased prices by 6% to 6.5%, according to a report by 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 4%.

The research also showed shoppers were seeing steeper rises in food prices than any other member of the Organisation for Economic Co-operation and Development (OECD).

According to UBS, food prices in Britain are rising at an annual rate of 4.9%, compared with 3.6% in Germany, a Eurozone average of 1.8% and a United States increase of 1.5%.

Mr Donovan said the weak pound had contributed to the higher-than-average UK increase, as 18% of food consumed in the UK was imported, but the scale of inflation had made Britain the OECD country "most vulnerable" to political interference.

The report said: "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'."

It said supermarkets could come under political and media pressure to cut prices, or even face another competition inquiry.

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."

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