Experts predict food prices will continue to rise in 2011

By John Dunn

- Last updated on GMT

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Food price inflation fell to 4% in November from 4.4% in October, according to the latest shop price index compiled by the British Retail Consortium (BRC) and Nielsen.

This was the first slackening in rising food prices for five months, said the BRC.

But experts have warned that food price inflation will continue as supplies of ingredients come under increasing pressure from the growing global population and rising world consumer affluence.

Clive Black, analyst at Shore Capital Stockbrokers, said the outlook for food prices remained inflationary. "We are looking at 2% to 4% inflation for 2011. A year ago we were looking at 02%. So we are faced with an increase in food price rise momentum. But it should be manageable."

Stephen Robertson, BRC director general, said the fall in food inflation showed that the highly competitive grocery market had kept costs down in the run-up to Christmas. But he warned that there had been no fundamental change in the upward pressure coming from higher costs for wheat and other commodities.

Mike Watkins, senior manager retailer services at Nielson, added: "We remain concerned about the underlying inflationary pressures and the VAT increase in January."

According to Shore Capital, fresh food price inflation was 2.6% in November, down from 3.4% in October. Ambient food inflation, however, rose slightly from 5.9% to 6.1%.

The US Department of Agriculture has predicted that food price inflation will accelerate during the first six months of this year. It has suggested that food prices in 2011 will rise 23% above 2010 levels with dairy prices expected to be as much as 5.5% higher than in 2010.

There is an across-the-board upward pressure on food prices, according to Black at Shore Capital. "It is a very real challenge for all food manufacturers. In the UK we predict the cost of food as a proportion of household expenditure to rise from 9% to over 10% when, for generations, it has been falling."

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