By Michael Race
Business reporter, BBC News
The price of olive oil, sugar and low-fat milk all increased by more than 40% in the year to January, official figures show.
Despite a drop in overall UK price inflation to 10.1% for the month from 10.5% in December, food costs remain at a 45-year high.
Cheese prices rose more than 30% in the year to January, while other staples butter and eggs were up by over 20%.
A Co-op Food boss warned food prices will remain high this year.
“Inflation is the thing that keeps us up at night. Unfortunately, in January prices still continued to rise and costs continued to rise,” Matt Hood, the managing director of Co-op Food, which has more than 2,500 stores across the UK, told the BBC’s Today programme.
Food inflation remained high at 16.7% in the year to January, a slight drop from 16.8% in December. Grocery prices are one of the main drivers fuelling overall inflation, along with energy bills, according to the Office for National Statistics (ONS), which published the data.
To calculate inflation, which measures the increase in the price of something over time, the ONS keeps track of the prices of hundreds of everyday items.
If it falls, it does not mean the prices of goods are going down, it just means prices are rising more slowly.
The fall in overall inflation, which was the third monthly decrease in a row, was largely due to the price of fuel and cost of restaurants and hotels slowing, the ONS said.
But this was offset by rising prices of alcohol and tobacco.
Some analysts have said the cost of living may now be beginning to ease after inflation hit a peak in October.
However at 10.1%, the rate of price rises is still way above the 2% target the Bank of England is charged with meeting.
Other than in the last year in which inflation has been rising, the last time it was above the current level was in February 1982.
Pay, excluding bonuses, increased at an annual pace of 6.7% between October and December 2022. But it is failing to keep up with the cost of living as when adjusted for inflation, regular pay fell by 2.5%.
Grant Fitzner, chief economist for the ONS, said the latest figures showed there were signs costs facing businesses were “rising more slowly”, but warned “business prices remain high overall, particularly for steel and food products”.
He said air and coach travel prices had dropped back after December’s “steep rise”. “Petrol prices continue to fall and there was a dip in restaurant, cafe and takeaway prices,” he added.
Chancellor Jeremy Hunt also warned the “fight is far from over” on rising prices.
“High inflation strangles growth and causes pain for families and businesses – that’s why we must stick to the plan halve inflation this year, reduce debt and grow the economy,” he said.
Although the government has pledged to halve inflation, many economists have predicted it will happen naturally, as the cost of energy falls.
But shadow chancellor Rachel Reeves said families would feel no better off following 13 years of Conservative government and repeated Labour’s call for a windfall tax on oil and gas companies to ease bills when energy prices go up in April.
Are we seeing the last of double digit inflation? The biggest factor driving it down of course is petrol – now only 2p a litre more than it cost before Russia invaded Ukraine.
It’s because inflation compares prices last month with a year before that the rate of inflation is almost certain to slow further in the coming months.
Fuel prices were already rising this time last year, but it was the war that blasted the price of petrol and wholesale gas into the stratosphere.
Two months from now we’ll be comparing prices in March 2023 with March 2022, after the fuel price had jumped, and therefore the difference – the rate of inflation – will be smaller. That will happen regardless of what the government or Bank of England does.
Crucially, the Bank of England’s big anxiety, that global inflationary pressure is becoming embedded domestically, will have been soothed. That undermines the argument for raising interest rates faster – and rates are now expected to peak at 4.5%.
The fall in inflation in January was bigger than widely expected.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said this gave the Bank of England “the flexibility” to keep its benchmark rate at 4%, rather than increase rates again.
The Bank raised interest rates for a tenth time in a row at the start of the month in bid to curb rising prices.
Raising interest rates is seen as a way to control inflation by making it more expensive to borrow money and thus encouraging people to borrow less and spend less, and save more.
But it is a balancing act as the Bank does not want to slow the economy too much with predictions that the UK could enter a recession – a period of economic decline – this year.
