Prices up, profits up: businesses pass on cost of economic crunch to the consumer

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The Independent Online

Concern is rising that consumers rather than businesses are bearing the full cost of the credit and raw material crunches that are destabilising the world economy and threatening to plunge some countries, including Britain, into recession.

Reporting a 45 per cent jump in profits to £883m yesterday, British Airways became the latest major company during the past week to report bumper sales after optimistic financial reports from Sainsbury's and Premier Foods.

BA has been in the headlines over the chaos during its recent opening of Terminal 5 at Heathrow airport, when thousands of passengers were left stranded and thousands of items of luggage were lost.

On Wednesday, Sainsbury's announced that profits had leapt by 28 per cent to £488m, at a time when customers are paying much higher prices for basic staples such as bread, eggs and milk because of soaring demand on world markets.

A day earlier, Premier Foods, which owns Hovis and Mr Kipling, indicated that it would shield its profits from the turbulence hitting world commodity prices by cutting costs and passing on planned price rises to consumers.

The profits announcements, which follow sharply higher profits from the oil giants Shell and BP, Tesco, and the gas company Centrica – which warned on Monday it is about to put up prices – come as British consumers face gloomier job prospects and soaring inflation.

According to the Government's preferred measure, the consumer price index, prices rose by 0.8 per cent last month – equalling their highest such rise. While inflation is about 3 per cent, food has gone up by 6.6 per cent. But basic food items have risen far faster, according to the grocery website, which says the price of its basket of 24 items has leapt by 20 per cent in the 12 months to May.

Regulators are now looking into the price rises. Ofgem, the energy regulator, is scrutinising the £24bn- a-year gas and electricity market to check whether householders are receiving a fair deal over concerns that companies raise their prices in a suspiciously similar manner.

The Office of Fair Trading raided the offices of Tesco, Asda, Morrisons and Sainsbury's last month in an investigation into alleged price-fixing of food and pharmaceutical products. At the centre of the investigation, according to one report, are 100 leading brands including Warburtons, Coca-Cola, and Aquafresh. Procter & Gamble, Coca-Cola, GlaxoSmithKline, Unilever and Andrex's US owner, Kimberly-Clark, are thought to have been told to supply information to the regulator.

The investigation will run alongside another OFT inquiry into whether big supermarkets colluded to push up the price of milk, which Asda and Sainsbury's have admitted, but which Tesco and Morrisons deny.

At the same time, the OFT is investigating whether the two biggest British tobacco brands, Imperial and Gallaher, engaged in price-fixing. Making its investigation public a fortnight ago, the OFT also claimed Gallaher, Imperial Tobacco, Asda, Sainsbury, Shell, Somerfield and Tesco had exchanged information on proposed future retail prices between competitors.

The raids came a few days before the Competition Commission gave the £100bn-a-year supermarket sector a clean bill of health and said it was largely acting in the public interest.

All players in the food business insist they are struggling to hold down costs and prices, while battling against forces beyond their control: increased demand from burgeoning economies such China and Brazil, droughts in agricultural producers such as Australia, and rising populations across the globe.