Shoppers boosted by record fall in food prices but sharp increases lie ahead, experts warn

Drop likely to be temporary as cost of imported goods has already risen sharply

Shops have cut prices but imports have already become more expensive, meaning price increases could be round the corner (Getty)

Hard-pressed shoppers were given a financial boost today as it was revealed that food prices fell by a record amount during August. But economists warned of big price hikes in the coming months as the weakened pound has already made imports more expensive.

Groceries cost 1.1 per cent less in August than one year earlier according to the latest data from the British Retail Consortium; a trade body that represents British supermarkets.

This is the first time the cost of food has fallen by more than 1 per cent annually since the index started in December 2006.

The cost of non-food items fell 2.5 per cent in August, having fallen 2.2 per cent in July. Experts say this is partly due to a supermarket price war as established players fight for market share with increasingly popular discount stores, Aldi and Lidl. The falling price of oil, which is at $47 (£35) per barrel, has also lowered the cost of transporting goods for retailers.

However, experts warn that prices are set to rise as supermarkets will be forced to pay more for goods purchased abroad after the sharp fall in the value of the pound.

“Price pressures are already picking up appreciably further down the supply chain,” cautioned Howard Archer, chief economist at IHS Market, adding that “substantial increases” in import prices had already been seen for a number of products in July.

Notably, food imports are up 2.6 per cent in just one month and more that 10 per cent in the year. Metal imports have soared by 9.2 per cent in 12 months.

Parts and equipment jumped 4.2 per cent in July, with other imported materials up almost 5 per cent in the month.

“The devaluation of sterling in wake of the referendum will put upward pressure on shop prices,” said Helen Dickinson, BRC chief executive.

“But that's likely to take several months to properly feed through, given that retailers won't feel the brunt of the cost increases until existing contracts with foreign suppliers come to an end.”

“Retailers will have to make a decision about when and how much to pass onto consumers,” she added.

The pound hit a one-month high on Monday, at $1.33 but still languishes 11 per cent below its pre-Brexit vote level against the dollar.