Food and petrol prices keep inflation unchanged at 2.7%

Britain's cash-strapped households have remained under pressure in the run-up to Christmas, as rising food prices held inflation at 2.7% in November.

Despite hopes that the squeeze on consumers' finances would start to ease, the Office for National Statistics said the annual inflation rate was unchanged in November, at 2.7%, as measured on the consumer price index.

The ONS said the impact of cheaper petrol on consumers' pockets was offset by higher household energy bills and the rising price of bread, cereals and vegetables.

Drought conditions in the US grain belt in the summer led to lower yields than usual, pushing up prices, while at home the wet conditions in spring and summer damaged vegetable crops – particularly potatoes, according to the statisticians. Recent reports have suggested the cost of sprouts has rocketed by nearly 25% over the past year.

The ONS also recorded a rise in the price of sweets and chocolate bars. It said: "A number of confectionery products have reduced in size. This is treated as a price increase in the CPI and RPI as consumers get less for their money." Overall food prices rose by 1.1% between October and November.

Living standards have fallen consistently over the past 12 months, as inflation has run well above pay increases. The latest labour market data showed average wages rising at just 1.8% a year.

Measured on the retail prices index (RPI), which includes mortgage interest payments, the inflation rate was 3% in November, down from 3.2% in October. The cost of some mortgage deals has declined as the Bank of England's Funding for Lending scheme has offered cheap money to banks willing to pass on the benefits to borrowers.

With households struggling to make ends meet, the cost of living has become a growing political issue. Cathy Jamieson, of Labour's shadow Treasury team, said: "In the New Year millions of families and pensioners face rising energy bills, the granny tax, and cuts to working tax credit and child benefit, while 8,000 millionaires get a tax cut."

But a Treasury spokeswoman insisted: "At the autumn statement, the government took more action to help households with the cost of living including a further increase in the tax-free personal allowance and cancelling the fuel duty increase that was planned for January."

George Osborne caved in to intense lobbying to cancel the planned January fuel duty rise; but the ONS pointed out that petrol prices actually fell in November by 3p a litre, to £1.35.

The failure of inflation to drop back in November will add to the concerns of those members of the Bank of England's monetary policy committee who fear that inflation has become "sticky", and could take off if quantitative easing is not reversed. The Bank's QE programme has pumped £375bn into the economy since 2009.

Andrew Sentance, senior economic adviser to PriceWaterhouseCoopers and a former member of the Bank's rate-setting Monetary Policy Committee, said: "Persistent above-target inflation creates a headwind for consumers, squeezing their spending, and is likely to dampen the recovery in economic growth which we are expecting to see next year." Sentance argued for rates to rise once the immediate crisis of 2008-2009 was over.

The Office for Budget Responsibility, which has repeatedly been forced to downgrade its growth forecasts as a sustainable recovery has failed to materialise, cited higher-than-expected inflation as one reason for the economy's weak performance.

Howard Archer of researchers IHS Global Insight said that with further utility price rises in December and January, it is "very possible that increased energy tariffs and higher food prices could push consumer price inflation up to 3% early in 2013 and keep it there for a while". Simon Hayes, of Barclays, predicted that "households will have to endure above-target inflation throughout 2013".