Shop price inflation up

Overall shop price inflation was up 2.2% in December, according to the BRC-Nielsen Shop Price Index.

Food inflation increased to 3.7% in December from 2.8% in November. Non-food inflation was up 1.4% in December from -1.2% in November.

Stephen Robertson, British Retail Consortium Director General, said: "With December being the first and only month where the 15 per cent VAT rate was the same as a year earlier, a shop price inflation rise was unavoidable. The downward effect of the VAT cut on annual inflation ended as its first anniversary passed but December's 2.2 per cent is still below the sort of figures we saw in the second half of 2008 before VAT became a factor.

"With retailers telling the BRC weak consumer demand is their biggest concern for 2010, they are doing all they can to hold prices down and avoid passing higher costs on to customers but shop price inflation is bound to be higher in January because of the return of the higher VAT rate.

"VAT isn't the only issue though. Increases in the costs of oil, food commodities such as wheat and sugar and the continued weakness of the pound are also filtering through."

Mike Watkins, Senior Manager, Retailer Services, Nielsen comments: "Prices fell in December 2008 as the result of the VAT reduction and, at the height of the shopper recession, discounting in non-food was also significant. There is also some food price inflation due to currency changes affecting ambient foods which are feeding through to volatile shop prices in supermarkets. So against these comparatives, the increase in shop prices this December is no surprise."