Shop prices accelerating despite retailers 'shielding consumers'

SHOP price inflation last month rose to its highest level since January despite retailers not passing on the full impact of wholesale price rises.

The British Retail Consortium (BRC) today reports that prices increased by 2.2 per cent year-on-year in October. That was up from the 1.9 per cent rise seen in September.

Food inflation increased to 4.4 per cent from 4 per cent in September - the biggest rise for more than a year - with non-food inflation rising to 1.1 per cent from 0.7 per cent.

BRC economist Richard Lim said some of the commodity price rises were "still in the pipeline" and that he expected to see more increases in food prices on supermarket shelves.

"We are probably going to see food price inflation continue to rise for the next few months but we don't expect it to reach the levels it did in 2008," Lim said.

Although prices were rising, retailers were shielding consumers from the worst of the commodity price rises that have seen the cost of wheat increase by 47 per cent over the past year and cotton by 90 per cent.

Stephen Robertson, BRC director general, said: "Weak consumer confidence and a sluggish housing market mean retailers are competing even more fiercely for the limited discretionary spending available.

"That situation is unlikely to change in the run-up to Christmas, with retailers clamouring to win the attention of cash-strapped consumers through discounting and promotions."

While most goods suffered price rises, electrical items fell 2.6 per cent as retailers dropped prices to attract cash-strapped consumers. Recent figures showed that inflation in the wider economy remained above target for a tenth consecutive month in September reaching 3.1 per cent, while Q3 GDP grew ahead of forecasts, at 0.8 per cent.

Overall the BRC expects shop price inflation to remain stable and low in the next two months, although with stronger pressure coming through from food price rises. But it said it was concerned about the prospect of rising wage expectations should inflation continue to rise.

"A combination of price inflation and higher wage demands is likely to threaten retailers' ability to continue creating jobs, necessary for supporting the economic recovery," the BRC said.

Latest pay settlement figures show that wage growth is still trailing below inflation at 2 per cent in the three months to September and with estimates that up to a million jobs are under threat in the public and private sectors it is thought unlikely that wage growth will pick up significantly over the coming year.