The Bank of England Governor yesterday suggested that high supermarket prices are being driven by food producers “rebuilding” margins.
Andrew Bailey also conceded that the Bank had “very big lessons to learn” about inflation.
The governor said that food manufacturers were not passing on falls in the cost of raw materials following a peak last summer. This meant that prices had not fallen as fast as the Bank expected.
It came as food makers were hauled into the Treasury for a meeting with Chancellor Jeremy Hunt to discuss why prices remained so high.
Speaking to MPs on the Treasury Select Committee, Mr Bailey said: “Our agents are starting to pick up a story about margins…it’s a story about rebuilding margins that were squeezed, particularly last year.”
He added that this was not the same as profiteering.
Lessons to learn
The governor also admitted that the Bank had “very big lessons to learn” following its failure to keep inflation under control.
His comments followed the Bank’s latest Monetary Policy Report, which included the biggest revision to its GDP forecasts in the Bank’s history.
Mr Bailey admitted at the time that it had underestimated the strength of the economy, and the Bank highlighted problems with its modelling, which is based on the last 30 years of data - a period in which there was no comparable inflationary shock.
The governor made the same point again to MPs yesterday, saying that Threadneedle Street failed to anticipate the extent to which food producers were forced to keep prices higher for longer because they had agreed contracts - such as energy deals - in advance when their costs were larger.
He said: “It should have been possible to identify that.”
Separately, food manufacturers were called to a meeting with the chancellor to explain why shoppers are still facing eye-watering prices at the tills.
Tensions mounting
The Telegraph says tensions have been mounting between grocery chiefs and their suppliers over the lack of widespread price cuts.
Supermarket bosses were earlier this month summoned to meet the Government amid claims of profiteering, which they deny.
John Allan, the then chairman of Tesco, suggested earlier this year that some suppliers might be taking advantage of inflation to push through steeper price increases.
However, major food makers have rejected those claims, and on Tuesday are understood to have told the chancellor that they were swallowing the majority of cost increases and not passing them on to supermarkets.