Food price inflation falls sharply

Food price inflation slowed dramatically in October as oil costs fell and retailers battled to win back consumers with lower prices.

Annual food price inflation slowed in October to 7.5 per cent from 9.1 per cent in September, the second decrease since inflation reached its peak in August, according to the British Retail Consortium (BRC).

On a month-on-month basis, prices in October were down 0.1 per cent compared with September.

The fall is down to a drop in commodity prices, which have led to a fall in producer price index (PPI), the BRC said.

However, with producer price inflation at 12.7 per cent, grocers are absorbing a large slice of inflationary pressures, the BRC added.

Stephen Robertson, BRC director general, said: "After a painful climb to the food inflation peak we're now accelerating down the other side. Food inflation is falling. It's falling more rapidly and we're now at the lowest rate since May.

"With oil and wheat thirty per cent down on a year ago, and the battle on for every pound customers have to spend, retailers are rushing to pass the benefits on. Would it be too much to ask that oil and utility companies do the same?"

A fall in food inflation for the second month suggests inflation as measured by the consumer price index (CPI) may have already peaked. This would give the Bank of England more room to manoeuvre in cutting interest rates.

Howard Archer, from Global Insight, said: "The retreat in the BRC shop price deflator in October increases scope for the Bank of England to cut interest rates aggressively on Thursday and we believe a full percentage point reduction from 4.50 per cent to 3.50 per cent is warranted given the ever growing threat of extended, deep recession."