Although Australian consumers enjoyed the past few months lower prices on selected goods because of the price war between Coles and Woolsworth, they are actually paying higher prices for other commodities.

The two retail giants initially offered steep price cuts on bread, milk, toilet paper and detergent and recently shifted the price battle to fruits and veggies.

According to the latest Consumer Price Index (CPI), coffee and tea prices went up 5.7 per cent, breakfast cereals rose by 2.2 per cent, cakes and biscuits by 1.3 per cent and ice cream by 1.1 per cent.

Choice, the consumer watchdog, warned Australian shoppers that the marketing strategies of the two retail giants may end up in higher price tags for items not included in the discounts. It urged consumers to check the prices of other basic items.

"They are just loss leaders. Shoppers are naturally attracted to those prices, but once you are in the stores you just don't go for the $1 milk or the cheap bread. You throw other products into your trolley. You end up doing your regular weekly shop," The Sydney Morning Herald quoted Choice spokeswoman Ingrid Just.

The grocery battle has resulted in several groups, including Choice and the Australian Food and Grocery Council (AFGC), to call for the appointment of a supermarket overseer who would have the power to impose fines on large retailers that engage in anti-competitive behavior.

"Logic tells you that if Coles is making more money from lower consumer prices, somebody is paying.... The reality is that a very large chunk of the discounted prices are being paid for by pushing price back into the supply chain to the manufacturers and the farmers," AFGC Chief Executive Kate Carnell said.

Ms Carnell said that because of the current price war, other groups within the supply chain such as toilet paper makers or olive oil processors are suffering. However, Coles General Manager for Fresh Produce Greg Davis denied that their 50 per cent discount led to lower return for farmers. Mr Davis insisted that Coles is acting responsibly and fairly, and that farmer suppliers are happy with Coles price cuts.

Paul Wilson, vice president of the Lismore Produce Market, lamented the negative impact of the Coles and Woolsworth price war on competition, consumers and producers. He said that because of the current situation in which the market is characterised by two large retailers and many sellers, the market is distorted in favour of the former.

He stressed that since farmers cannot ask for lower cost of fertiliser or fuel, they end up shouldering the cost.

"They are not content with 80 per cent of the retail market, they want it all, at our expense," Mr Wilson told the Northern Star.

On Monday, the federal government even gave the go signal for the milk price war to continue as the Senate Economics Committee investigation into the dairy industry which started in 2010 released its recommendations. The report did not agree to another review into competition and consumer law in the country's milk industry and referred the matter instead to the consumer watchdog which had earlier approved the hefty milk discounts.

The cut in milk prices has led to consumers paying now for several months $1 for a litre of milk, which caused farmers and independent grocers to protest. Adrian Drury, board member of the Australian Dairy Farmers, pointed out that farm-gate prices for milk in Queensland had dropped 4 cents a litre since the big retailers cut price more than a year ago.

"Most politicians publicly say they want farmers to be treated fairly but don't do anything about it because they don't want to upset consumers," Couriermail.com.au quoted Mr Drury.

Despite the lower prices of some basic consumer goods, overall consumer prices rose in January due to increasing prices for utilities and transportation, according to the monthly inflation gauge of TD Securities-Melbourne.

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