Soaring food prices took inflation to a 16-year high last month, dashing any hope that the Bank of England might soon cut interest rates to boost the economy.

Huge increases in the price of meat products, milk, cheese and eggs contributed to the steepest monthly climb in the cost of living for a decade. Headline inflation on the consumer prices index surged to 4.4 per cent in July, more than double the Bank’s 2 per cent target and the highest annual rate since April 1992.

With swingeing increases in gas and electricity bills still to feed through, and likely to drive inflation to 5 per cent by autumn, the Bank is expected to take a hard line today in its quarterly Inflation Report.

The Bank is about to cut drastically its forecasts for Britain’s economic growth this year and next. But economists said that the “desperately disappointing” inflation news meant that it was likely to all but rule out rate cuts before the end of the year. Instead, there could be increases.

The tight squeeze on families’ budgets was emphasised by the scale of price rises for food, energy and other items revealed in yesterday’s figures.

Food was the chief culprit behind last month’s big inflation rise. Overall food prices in July were up by 13.7 per cent from levels a year earlier. The average grocery bill for a typical family of four has climbed by more than a quarter to £127 since last summer, according to estimates by the price comparison website Mysupermarket.com.

The steepest rises have been in the price of meat, which is up by 16.3 per cent over the past year. Back bacon is up by 13 per cent to £8.48 a kilogram; pork sausages by 9 per cent to £3.92; best mince by 19 per cent to £5.77; and chicken by 35 per cent to £3.02.

There have also been sharp price rises for bread and cereals, up 15.9 per cent in a year; milk, cheese and eggs, up by 19 per cent; vegetables, up 11.1 per cent; and oils and fats, up 29.5 per cent.

The cost of food is being driven upwards by demand from fast-develop-ing Asian countries as their people grow richer and switch to Western-style diets. The Asian appetite for meat in turn requires more grain to feed livestock. This, combined with a global switch to biofuels, is sending cereal prices soaring. At the same time, farmers in Britain and throughout the world have faced higher costs for fertiliser and fuel, because of near-record oil prices.

Surging energy costs also contributed to last month’s 16-year high for inflation. The average price of a litre of petrol rose by another 1.2p last month to 119p. This was up by almost a quarter from 96p a year ago, although there are hopes that prices could soon fall after a recent $30-a-barrel drop in the price of crude oil from July’s peak of more than $147.

The cost of electricity and gas was already 16 per cent up last month from a year earlier, and is likely to climb further after price rises imposed by British Gas and EDF. Other utility companies are likely to follow.

The Bank of England will also be concerned by evidence of inflation on items other than food and energy. So-called core inflation, which excludes food and fuel costs, jumped to an annual rate of 1.9 per cent last month, up from just 1.2 per cent as recently as five months ago. The figure was boosted by factors such as air fares, which increased by almost 21 per cent last month.

The Bank’s fear of price pressures being increased by above-inflation pay increases will be aggravated by an inflation rise of the retail price index – used in many wage negotiations – to 5 per cent, its highest since 1991.

Pressure on the purse

13. 2% rise in the cost of education through tuition and private school fees in the past year

11p increase in the cost of a pint of lager since July last year

1. 2% rise in the cost of new cars this year

20.7% rise in the cost of airline tickets during July

40p increase in cost of 1 kg of new potatoes in the past year

£1.34 extra cost of 1kg of cheddar cheese over past 12 months

Source: ONS, AA, Mysupermarket.com

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