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Non-food inflation up as VAT rise starts to be felt


Overall shop price inflation rose in February to 2.7 per cent compared to 2.5 per cent in January, it was revealed today.

The British Retail Consortium (BRC) and Nielsen Shop Price Index has shown that food inflation fell by 0.1 per cent to 4.5 per cent last month, after a 0.6 per cent rise the previous month.

Non-food inflation saw the biggest change in the month rising from 1.3 per cent to 1.6 per cent, with retailers beginning to introduce part of the VAT rise introduced in January.

Stephen Robertson, Director General of the BRC, said: “January’s VAT rise is starting to have an impact on non-food prices, pushing up overall inflation compared with the previous month.

“Even so, non-food inflation would be much higher if the full impact of the VAT rise had been passed on to customers. In fact, strong competition for business is still producing price falls in some areas, such as electricals and clothing.”

Food inflation has been over four per cent since the turn of the year and so a reduction will come as some relief to consumers, and the BRC estimates that 39 per cent of groceries available in Britain are currently on promotion or discount.

Rising commodity prices, in particular the price of fuel, are putting increased pressure on the margins of supply chain operations, manufacturers and retailers but so far shop price inflation has stayed below the official inflation rate used by the government, the consumer price index, which in January was four per cent.

Investment bank UBS suggested last week that UK grocers were using overall inflation as a cover to improve their margins but the BRC strongly rejects that claim and points to today’s figures as further proof that retailers are attempting to protect consumers for large price rises.

Mike Watkins, Senior Manager of Retailer Services at Nielsen, commented: “With sales momentum slowing at the start of 2011, food retailers have had to maintain promotions and price cuts at the high levels we saw in December and this has helped to mitigate some of the effects of the underlying inflation increase this month.

“And, whilst some of the increases in VAT have been absorbed by many retailers, the overall result is an increase in shop prices in non-food.”

Published on Wednesday 09 March by Editorial Assistant

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