Shop price inflation climbs to 2.5%

Shop price inflation rose again in January as the impact of climbing commodity costs on food prices offset heavy discounting in non-food goods.

The British Retail Consortium (BRC) said overall shop price inflation rose to 2.5% from 2.1% in December. Food inflation rose to 4.6% from 4% while non-food inflation edged up to 1.3% from 1.1%.

The data are the latest in a series that put pressure on the Bank of England to raise interest rates to keep a lid on inflation.

The BRC’s director general Stephen Robertson said the VAT rise in early January to 20% from 17.5% had little effect on prices, as many retailers were left with large amounts of stock to shift.

“The rate of inflation for non-food goods – mainly the ones subject to VAT – was only 0.2 percentage points higher after the VAT rise than before, showing retailers generally took the hit on behalf of customers, but, with a range of other cost pressures also squeezing margins, retailers will struggle to go on absorbing it,” he said.

"Rising commodity prices continue to push up food inflation, now to its highest for a year and a half.”

Soaring prices for commodities such as wheat and milk have been feeding through to the consumer in recent months. Clothes retailers such as Next and SuperGroup have also reported the impact of higher cotton prices on margins.

Bank of England governor Mervyn King said last month that rising inflation combined with sluggish wage growth mean Britain faces the tightest squeeze on household budgets since the 1920s.

“The squeeze on living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing of the world and UK economies,” he said.

Source : Rory Gallivan - Sharecast