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Shop price inflation grows before the VAT rise


Commodity pressures caused overall shop price inflation to increase by 0.1 per cent to 2.1 per cent year-on-year last month, according to the latest data.

December’s Shop Price Index compiled by the British Retail Consortium (BRC) and Nielsen, shows food inflation unchanged at four per cent whilst non-food inflation increased to 1.1 per cent from 0.9 per cent in November.

The low level of change is good news for retailers after months of increasing inflation, particularly in food prices, but this month’s VAT rise is likely to push up the cost of goods further.

Stephen Robertson, Director General of the BRC, said: “Retailers are protecting British consumers from the full-force of global commodity cost increases, with unprecedented levels of discounting taking the sting out of grocery shopping.

“A string of costs are higher than a year ago. Extreme weather and poor harvests have driven coffee up 52 per cent, wheat 45 per cent and soya beans 38 per cent yet the shop price of food is up only four per cent and that figure is no higher than the previous month.”

Discounting during the Christmas period started earlier and went further than in previous years, with department store retailer John Lewis for example starting its January sales on Christmas Eve.

Many have predicted that shop prices are set to increase significantly in the next few months as commodity prices and the rise in VAT continue to impact on retailers’ margins, but shoppers wallets are being squeezed too and price hikes are likely to further damage consumer confidence.

Robertson added: “Overall shop price inflation is well below the wider Consumer Price Index, though price increases in some non-food goods pushed that figure up slightly compared with November.

“That’s consistent with warnings from some retailers that inflationary pressures are working through to prices.

“Next month’s figures will show the initial impact of the latest VAT increase. Retailers know that customers are worried about their jobs and personal finances. The competitive retail environment will mean stores go on doing all they can to limit price rises.”

Published on Wednesday 12 January by Editorial Assistant

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