The British Retail Consortium (BRC) has become the latest trade organisation to warn that the cost of food and other items will rise sharply this year as companies grapple with higher costs from October’s Budget, including hikes in employer NI contributions and the national living wage, alongside new packaging levies.
The retail body is forecasting that food prices will climb by an average of 4.2% in the latter half of the year, while non-food items will return firmly to inflation.
With retailers facing a £7bn increase in their costs in 2025, Helen Dickinson, the Chief Executive of the BRC, stated that there is little hope of prices going anywhere but up, with shop price deflation likely to become a thing of the past.
She added: “Government can still take steps to mitigate these price pressures, and it must ensure that its proposed reforms to business rates do not result in any stores paying more in rates than they do already.”
Prices in UK shops for both food and non-food items fell by 1% in December, according to the latest BRC-NielsenIQ Shop Price Index. This compared to deflation of 0.6% in the previous month and was driven by retailers offering discounts on Black Friday.
Food price inflation was unchanged at 1.8%. Fresh food inflation remained at 1.2%, while ambient food inflation edged up from 2.7% to 2.8%.
Non-food remained in deflation at -2.4% in December, edging down from -1.8% in the preceding month, driven by lower prices for goods such as clothing and homeware.
Mike Watkins, Head of Retailer and Business Insight at NielsenIQ, noted that shoppers benefitted from both lower inflation than last year and bigger discounts as both food and non-food retailers were keen to drive sales after a slow start to the quarter.
He added: “Higher household costs are unlikely to dissipate anytime soon, so retailers will need to carefully manage any inflationary pressure in the months ahead.”
Clive Black, renowned analyst and head of consumer research at Shore Capital agreed with the BRC that food inflation would build during 2025. However, he noted that despite the increased costs faced by retailers, supermarkets will seek to be shoppers’ champions, predicting that the trading environment is likely to remain highly competitive.
NAM Implications:
- Surprised?
- “Likelihood that the retail trading environment in 2025 will be highly competitive”.
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