Households feel food price pain

A painful rise in the cost of the weekly shop kept up the inflation pressure for struggling household budgets in November, giving more headaches for rate-setters at the Bank of England.

Rising food prices following sodden harvests over the summer offset relief for motorists from a sharp fall in petrol prices, keeping the Bank's preferred consumer prices index benchmark unchanged at 2.7 per cent in November. According to the central bank's latest forecasts, the CPI will remain above its 2 per cent target throughout 2013.

The price of everyday staples such as bread and vegetables is soaring, with food prices overall 3.9 per cent ahead of November last year following the worst wheat harvest in 25 years. Vegetables such as potatoes are up a stinging 8.1 per cent. The figures also took account of gas and electricity price rises for the first time with Scottish & Southern Energy's price rise, an effect which will worsen in December's inflation data.

The latest rise comes on top of the Chancellor's spending squeeze due to kick in next year, restraining increases in many benefits to 1 per cent. Osman Ismail, an economist at the Centre for Economics and Business Research, said: "The poorest will feel their disposable incomes squeezed especially tightly. Consumers will likely continue to see their spending power eroded by rising prices for quite some time, whether they are in work or out of work."

Economists also warned that stubbornly high inflation is tying the hands of Bank of England rate setters despite rising fears over the economy tumbling back into recession.

The cost of living looks set to resume its rise towards 3 per cent next year, adding to the jitters on the Bank's Monetary Policy Committee over extending its £375bn money-printing programme.

This comes despite warnings, not least from the Governor, Sir Mervyn King, that growth may fall back into negative territory for the October-December quarter.

IHS Global Insight's economist Howard Archer said: "Higher inflation is clearly contributing to reluctance within the Bank of England to do more quantitative easing in the near term at least."

Currency markets also bet against further money printing, pushing sterling to a two-month high of $1.625 following the figures.