Price of oil and food could remain high for some years

Consumers have been given a stark warning over the past couple of weeks, with officials stating that the cost of food and oil in the UK could remain high for years, which means that household finances will continue to remain strained. The warning came in a report from the government, with officials from the Treasury warning that shortage of supplies couples with growth in both population and world economy could result in many years of higher oil and food prices.

Families in the UK are already facing some of their most challenging times, and this has resulted from higher borrowing costs, tighter credit conditions, soaring petrol prices, increased food prices, and higher bills, all of which have had a severe negative impact on most household finances, particularly given that whilst inflation levels are soaring wages are rising at well below the current rate of inflation.

The report said: ‘Expert views and market expectations reviewed here suggest that prices are likely to remain higher than their historical averages, if lower than today’s levels, with continuing and perhaps more frequent shocks.’ It continued that this was being driven ‘by continuing strong demand and a continuing slow supply response’, the report said. ‘It will be an ongoing challenge for supply to match demand at affordable prices.’

With inflation levels now at 3.3%, which is way over the government’s 2% target, there are already concerns over how high inflation could go, and this report has sparked concern that it could soar to 5% or more. One industry official said: ‘If oil and food prices were to carry on rising, UK consumer price inflation could rise above 5% and remain above its 2% target until 2010 and beyond, with disastrous consequences for the real economy.’

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