With prices at pumps starting the year at their highest since 2014, cost of food and other essentials is also predicted to go up

Households are being told to brace for more price rises on fuel, food and other essentials in 2017 after the new year started with petrol at a two-year high.

The AA says motorists in the UK are paying 15p a litre, or an average of £8.25 a tank, more than a year ago, and economists say a higher oil price and weak pound will probably push prices up further this year.



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Planned production cuts by Opec members and non-Opec countries have pushed the oil price higher in recent weeks, though the price of Brent crude fell back slightly in Tuesday trading.

That has led to higher prices on forecourts, and the AA said petrol over the weekend averaged 117.90p a litre compared with 102.69p at the same time last year. The price is now the highest since December 2014. Diesel rose to 120.35p a litre compared with 105.99p a year ago.

“Drivers have had a bad start to 2017, seeing 1p, 2p and even 3p ticking up on the fuel price boards over the Christmas and New Year holiday period. Petrol is back to where it was in December 2014 and diesel at a level last seen in July 2015,” a spokesman said.

Households are also facing higher food costs, according to a separate report suggesting UK grocery prices rose between November and December. A basket of 35 commonly bought items cost £83.33 last month, up from £83.18 in November, according to the website mySupermarket. It was, however, still 3% cheaper than in December 2015.

The increases follow signs from official data suggesting higher prices are starting to affect the way people spend. November retail sales figures showed that after fuel prices rose, annual growth in fuel sales was the slowest for almost two years.

Inflation in the UK remains relatively low, at 1.2% on the latest reading, but economists say it could rise to 3% by the end of the year as the oil price increases and the pound’s weakness since the Brexit vote inflates the cost of imports to the UK such as metals and food ingredients.

The import price effect is already being seen in measures of manufacturers’ costs, and companies are expected to pass at least some of that on to consumers.

The British Retail Consortium said shop prices were still falling year-on-year but that the pace of deflation eased last month to 1.4% from 1.7% in November. It said the general trend for prices this year would be upwards but that competition between retailers would limit how much they could increase prices.

Its latest figures show that non-food deflation decelerated to 1.9% in December, down from 2.3% in the previous month and the weakest deflation rate since June 2015. Food deflation decelerated marginally to 0.7% in December from a rate of 0.8% in November.

Helen Dickinson, the BRC’s chief executive, said the majority of the categories it monitored had seen month-on-month increases even though prices were down on a year ago overall. Clothing and footwear saw month-on-month inflation for the first time in nearly two years.

“We’ve said for some time that we expect to see underlying inflationary pressures, notably from the post-referendum fall in the value of the pound, feed through into shop prices,” she said. “It’s too early to confirm that this is what we’re seeing in December’s figures: timings of seasonal discounts can cause monthly fluctuations at this time of year and retailers have continued to find ways to mitigate the impact on consumers.”

“However, we expect the general trend in inflation to be upwards over 2017. The magnitude of the exchange rate movement and commodity price rises combined with the increasing costs of doing business means that retailers will have little choice other than to pass on some of these rising costs into prices but the effect will be lessened by the intensity of competition.”