Retailers warn Chancellor that shop price inflation is accelerating

The Chancellor has received a stark warning that the containment of surging shop price inflation is failing, with industry leaders describing the situation as a dam beginning to break. This assessment comes as new data indicates that retailers, who previously suppressed price rises through heavy discounting, are now seeing costs pass through to consumers at an increasing rate. The warning is issued ahead of the upcoming Budget, with the British Retail Consortium urging immediate government action to prevent further escalation in prices.

According to data from the British Retail Consortium, shop prices rose by 2.1 per cent in the year to October. This represents a significant increase from the 1.4 per cent recorded in September and is well above the three-month average of 1.6 per cent. The acceleration is primarily driven by rising prices for long-life goods. While fresh food inflation remained steady at 2.6 per cent, overall food prices climbed to 2.9 per cent in the year to October, up from 2.5 per cent the previous month. Inflation among non-food goods nearly doubled, jumping from 0.8 per cent in September to 1.7 per cent in the current period.

Industry figures attribute this shift to the knock-on effects of the Iran war on energy and supply costs. Following the first strikes by the United States and Israel on Iran, experts warned that the effective closure of the Strait of Hormuz would cause UK food prices to surge, mirroring the impact of Russia’s invasion of Ukraine. The Food and Drink Federation initially predicted food inflation could reach 10 per cent by the end of the year, though it later adjusted its forecast to a peak of 6.4 per cent by next summer. Despite recent months seeing food inflation hold steady at 1.3 per cent, executives at major supermarkets, including Sainsbury’s and Tesco, have questioned whether these cost increases would ultimately be passed on to shoppers.

Mike Watkins, head of retailer insight at data firm NIQ, noted that retailers had managed to delay the impact of these rises by aggressively discounting products. He stated that high street retailers, facing consumers who are becoming more cautious due to higher energy and fuel costs, will increasingly rely on promotions to drive discretionary non-food spending. Helen Dickinson, chief executive of the BRC, emphasised that the message to Chancellor John Healey is clear. She argued that without a change in course, the recent jump in inflation is only the beginning. The trade body has urged the Chancellor to implement a simple recipe to halt food inflation, which includes cancelling business rate hikes, reducing employment costs, and removing packaging taxes.