Grocery prices are exerting significant pressure on all Australians. Consumers may face higher prices for basic groceries at supermarkets in coming months despite the Rudd Government's national inquiry to examine price rises. Between September 2005 and last year, food prices jumped by close to 12% - double the consumer price index rise of 5.9% during that period.

"While inflation has been low over the last few years, food inflation has been higher than average and there is considerable evidence to suggest Australian food inflation has been higher than the world average," said Assistant Treasurer, Chris Bowen. He said Australia had one of the most concentrated grocery industries in the world, prompting the inquiry's focus on the possibility of price-gouging.

Peter Kell, chief executive of consumer group Choice, said the dominance of Woolworths and Coles did not deliver the benefits of competition to shoppers. The Australian Competition and Consumer Commission (ACCC)  has been directed to look at the structure of the grocery industry at supply, wholesale and retail levels, and the nature of competition in the industry and pricing practices.

Woolworths chief executive Michael Luscombe has promised to assist the investigation, but has warned that the drought and external factors will inevitably lead to price rises for consumers. "The drought is certainly having a significant impact on food prices, as crop failures, high feed costs and water shortages have led to low production levels for grain, beef, lamb and dairy," said Luscombe.

Opposition Treasury spokesman Malcolm Turnbull said he doubted there was much the Government could do about grocery prices, but added Kevin Rudd was elected on a promise to take action on grocery and petrol prices.