Retail inflation slows but sharp price rises threaten

Retail inflation slowed for the first time in five months during November, but the industry warned of sharp price hikes in the new year.

Shop price inflation fell to 2% in November from 2.2% in October as stores started Christmas sales early, according to figures from the British Retail Consortium (BRC).

Food price inflation unexpectedly eased to 4% in November from a 17-month high of 4.4% in October and non-food inflation slowed from 1.1% to 0.9%.

The drop in inflation was the result of a record level of promotions, with 38% of goods being sold on offer as retailers fought to win sales from cash-strapped consumers, the report showed.

Supermarket giant Tesco yesterday said inflation had slowed by around 0.7% in the 13 weeks to November 27 as it reported a 1.5% like-for-like sales increase.

Inflation is expected to gather pace next year due to a VAT hike to 20% from January 4 and the higher prices of key commodities such as wheat, corn and oil which are still at their highest levels since 2008.

Mike Watkins of Nielsen, which helped compile the BRC survey, said: "Whilst it is good news for shoppers that the rate of change in shop prices has slowed this month there is still upward pressure from ambient food and non-food price increases are being held due to seasonal price cutting.

"We remain concerned about the underlying inflationary pressures and the VAT increase in January and whether this impacts the motivation of the already cautious consumer."

Fresh food inflation slowed to 2.6%, from 3.4% last month, with fruit prices having dropped to a 13-month low after hitting a 19-month high in October.

However, ambient food prices were 6.1% higher year-on-year, recording their highest increase since June 2009, and oils and spreads saw double-digit price hikes.

BRC director general Stephen Robertson said: "A fall in food inflation to 4% shows the highly competitive grocery market is keeping costs down for customers in the run-up to Christmas.

"There's been no fundamental change in the upward pressure coming from higher costs for wheat and other commodities, but stores are holding back the full force of these rises."

Clothes and footwear prices decreased by 5.5% in their fifth monthly decline, despite cotton prices having more than doubled in the past

year.

The price of electrical equipment was also down 2.7% as fierce competition on the high street forced retailers to knock down prices.

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