Retailers prepare to pass on higher costs to consumers

A British Retail Consortium (BRC) survey has found that British retailers are expected to increase prices in the coming months due to rising employment costs.

In February, shop prices were 0.7% lower than the previous year, but saw a monthly increase of 0.4%, marking the largest rise in a year.

The report also noted that food inflation rose to 2.1%, with expectations of further increases driven by climbing global coffee prices.

Helen Dickinson, Chief Executive of the BRC, said “While shop prices remained in deflation in February, prices on the month saw the biggest increase in the last year. Breakfast, in particular, got more expensive as butter, cheese, eggs, bread and cereals all saw price hikes. Climbing global coffee prices could threaten to push the morning costs higher in the coming months. In non-food, month on month prices rose as January Sales promotions ended, especially in electricals and furniture. But discounting is still widespread in fashion as retailers tried to entice customers against a backdrop of weak demand.

“Inflation will likely rise across the board as the year progresses with geopolitical tensions running high and the imminent £7bn increase in costs from the Autumn Budget and the new poorly designed packaging levy arriving on the doorsteps of retailers. We expect food prices to be over 4% up by the second half of the year. If Government wants to keep inflation at bay, enable retailers to focus on growth, and help households, it must mitigate the swathe of costs facing the industry. It can start by ensuring no shop ends up paying more than they already do under the new business rates proposals, and delaying the new packaging taxes.”

Mike Watkins, Head of Retailer and Business Insight, NielsenIQ, said “With many household bills increasing  over the next few weeks, shoppers will be looking carefully at their discretionary spend and this may help keep prices lower at non-food retailers. However  the increase in food inflation is likely to encourage even more shoppers to seek out the savings available from supermarket loyalty schemes.”