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Everyone seems to be talking about rising food prices at the moment, but what is the real level of food price inflation? Are the official numbers released by the Office of National Statistics understated?

The ONS is under attack from both sides. Leading on one front is J Sainsbury's CEO, Justin King, who claimed recently the official food inflation annual figure of 6.6 per cent is much too high. Real food inflation, he believes, is just 2 per cent. The discrepancy arises because the ONS does not recognise the price cuts that customers achieve through “buy one get one free” deals at the supermarket and other voucher-based promotions – the ONS simply compares the shelf price of food from month to month. Tesco has also said food price inflation is not as high as the headlines proclaim.

On the other front is a popular national tabloid newspaper. The paper has calculated its own food inflation index, and finds inflation in its grocery basket running at 15.5 per cent a year. Dozens of comments from readers show almost unanimous agreement that this figure reflects their own experiences. This is a problem, because no matter what the correct figure is, if people start believing that inflation is back it becomes much harder to fight it.

Bond fund managers therefore find themselves in a difficult situation, as there is no greater enemy to a fixed interest investor than inflation. A period of below-trend growth, coupled with the credit crunch, will lead to disinflationary pressures reasserting themselves from 2009 onwards. However, it is now even more important to keep a close eye on wage growth.

Workers' real incomes have been stagnant now for four years, and as such salaries have not kept track with productivity growth and inflation. As long as this remains the case, and workers’ earnings growth remains below 4.5 per cent - earnings are growing at 4 per cent at present - it is difficult to see how the UK can enter an inflationary spiral. With profit growth deteriorating and unemployment rising, it is unlikely that employers will be rushing to award inflation-beating wage rises. Furthermore, if wage hikes are not forthcoming, higher food and energy costs are only going to hit incomes harder.

In an economy where the savings rate is zero and credit is difficult to come by, there are not many options left. Consumption will have to fall – and consumption makes up two thirds of GDP in this country. It looked as if falling house prices would tip the UK into recession, but the rising cost of food could threaten to do so next.

Jim Leaviss is head of retail fixed income at M&G