No hiding huge inflation in Britain anymore

Section:

Families Hit With L1,300 Rise in Cost of Living

By Harry Wallop
The Telegraph, London
Tuesday, February 12, 2008

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2008/02/12/ncost112...

Families are having to pay an extra L1,300 a year in household bills as food and fuel prices rise at their fastest rate for 17 years.

With the cost of meals, mortgages, utility bills, and council tax soaring, Alistair Darling, the Chancellor, is under pressure to abandon a proposed petrol tax increase in April.

Households are already burdened by record costs as domestic bills have climbed far faster than the official rate of inflation over the past year.

An analysis carried out by The Daily Telegraph shows the five biggest bills most families pay have increased by a total of more than L100 a month.

Last year, total average household monthly bills were about L1,200. This has risen to L1,307 over the past 12 months -- an annual increase of L1,284.

Philip Hammond, the Conservative Treasury spokesman, said: "These figures make a mockery of Gordon Brown's boast of low inflation. Thanks to his economic incompetence, ordinary families are now faced with soaring food and fuel costs. With real take-home pay falling, they will be more squeezed than ever."

The figures released yesterday by the Office of National Statistics (ONS) shocked economists.

They showed that the prices paid by firms for wholesale goods such as food and oil increased by 5.7 per cent in January, the sharpest increase since August 1991.

Prices on supermarket shelves have climbed at an alarming rate over the past year.

Analysts have warned these will increase further still, not only hitting hard-pressed families but also making it hard for the Bank of England to cut interest rates as it struggles to keep inflation under control.

To make matters worse, escalating prices are racing ahead of wage increases, especially those of nurses, teachers and police officers, who have suffered from Mr Brown's insistence that those in the public sector have to receive below-inflation salary rises.

The rise in costs has intensified calls from motoring groups for Mr Darling to scrap a planned two-pence increase in fuel duty.

The average price of a litre of unleaded petrol is now L1.04. According to the AA, the monthly cost of filling up a car now exceeds L100 for the first time -- with an average car now costing L106, compared with L90 a year ago.

In addition to fuel and food, energy bills are also soaring. Five out of the six largest suppliers have increased their customers' bills. Most rises came into force only in the past week or two, so are not reflected in the new inflation figures.

Energywatch, an independent watchdog, calculates that the average household has to spend L1,020 a year on gas and electricity -- more than L100 extra than a year ago.

The inflation figures showed the price food factories are having to pay for goods is 8.5 per cent higher than a year ago -- the biggest rise since the ONS began collecting data on food costs in 1986.

MySupermarket.co.uk, which compares prices across different websites, said a basket of 24 key items had increased by 11.3 per cent compared with a year ago.

A dozen free-range eggs now costs L2.45 at Tesco, compared with L1.75 a year ago; a pack of butter at Asda is 62 per cent more expensive at 94 pence and the cost of a kilo of basmatti rice at Sainsbury's has risen by 39 per cent to L1.25.

These increases equate to an extra L324 a year for an average household, or L527 for larger families that spend L90 a week on their supermarket shop.

The ONS partly blamed the soaring cost of dried fruit -- a key ingredient in breakfast cereals, curries, and baked goods -- for a sharp spike in prices in January.

John Williams, the chairman of Needwood Foods, one of the country's largest importers of dried fruit, said: "I've been in the industry for 30 years and never seen anything like it."

He added that he had already passed on his soaring costs to his supermarket customers, but was still waiting for supermarkets to pass it on to shoppers.

The rising costs are unlikely to be reflected in the official consumer inflation figures -- due to be published today.

Economists warn the figures no longer reflect the true cost of most families' escalating bills. The index of consumer prices includes a handful of luxury items that are plummeting in price, especially electrical gadgets, plane tickets, alcohol, and some clothes.

This explains why the index is likely to show that inflation is climbing at just 2.3 per cent.

Ruth Lea, an economic adviser to the Arbuthnot Banking Group, said: "This is why so many people will feel such a squeeze this year. The price of essential bills affect people hugely in the way that the price of a plasma-screen TV does not.

"Pensioners are understandably baffled when the inflation figures say prices are climbing by just two per cent. They have seen their bills rocket."

Jonathan Loynes, chief economist at Capital Economics, said: "There is far less scope for consumers to cut back on essential items, be it utility bills or food, if times are tight."

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