Surging inflation is expected to push up British grocery bills by £380 this year, according to new consumer data, as the Bank of England chief economist argued that higher interest rates would be necessary to tame rising prices.
In April, the research company Kantar had predicted the average cost of an annual supermarket shop would go up by £270 this year, but revised this up by more than £100 on Tuesday due to continued upward price pressures across the supply chain.
The data showed “just how sharp price increases have been recently and the impact inflation is having on the [food retail] sector”, said Fraser McKevitt, head of retail and consumer insight at Kantar.
Official data showed that consumer price inflation rose at a 40-year high of 9 per cent in April with the Bank of England predicting it could rise by 11 per cent in autumn.
The figures came as the Bank of England’s chief economist Huw Pill said there was a need for further interest rate rises in the UK even if an increase heightened the risk of recession.
Speaking to an online audience on Tuesday, Pill said that the BoE’s efforts to ease inflation used “blunt instruments” that would bring down inflation but could not fine tune the economic cycle or address inequality.
Pill acknowledged that inflation had taken on “self-sustaining momentum”, which might prompt the BoE to act more aggressively to bring it down with higher rates.
While inflation h driven by energy prices, rising costs have spread across many economic sectors as businesses increasingly pass on their higher costs to consumers.
Official data for prices of food and beverages rose at an annual pace of 6.7 per cent in April, the fastest in more than a decade. Kantar data showed that the surge in food price growth has continued to rise.
Grocery inflation reached an annual rate of 8.3 per cent in the four weeks to June 12, according to the data, up 1.3 percentage points from the previous month and its highest level since April 2009.
Shoppers have responded to rising living costs by swapping branded items for cheaper supermarket own-label products, Kantar said. Sales of the former fell by an annual rate of 1.0 per cent in the 12 weeks to June 12, in contrast with a 2.9 per cent increase in sales of own-brand goods.
“We can also see consumers turning to value ranges, such as Asda Smart Price, Co-op Honest Value and Sainsbury’s Imperfectly Tasty, to save money,” added McKevitt.
Financial markets expect the central bank to raise rates to 3 per cent over the next year as the bank tries to rein in inflation that it expects to rise to more than 11 per cent in the second half of the year.
At the same time, the outlook for UK economic growth is deteriorating as higher price growth is expected to hit consumption.
Although some on the BoE’s Monetary Policy Committee do not think further tightening is required to tame inflation, Pill sided with the more hawkish members.
“We will do what we need to do to get inflation back to target. And at least in my view, that will require further tightening of monetary policy over the coming months,” Pill said.