The rate of inflation of goods sold in shops increased in December and consumers were warned that more price hikes are on the way.
Shop prices were 2.1% more expensive in December than a year ago, as the rate crept up from 2% in November, driven by the rising cost of non-food items, according to figures released today by the British Retail Consortium (BRC) and Nielsen.
Food price inflation remained at 4% in December, but non-food inflation increased to 1.1% from 0.9% the previous month, pushed upwards by toiletries, cosmetics, DIY and home furnishing products.
January's rise in VAT from 17.5% to 20% and further hikes in the price of commodities, such as oil, wheat and corn, are expected to lead to more pain for consumers in 2011.
BRC director general Stephen Robertson said: "Retailers are protecting British consumers from the full force of global commodity cost increases, with unprecedented levels of discounting taking the sting out of grocery shopping.
"Retailers know that consumers are worried about their jobs and personal finances and stores will go on doing all they can to limit price rises."
He pointed out that shop price inflation was below the Government's official consumer price index (CPI) figure of 3.3% in November.
But "a noticeable rise" in non-food inflation is on the way as a result of the VAT rise, although some of the hikes may be offset by promotions, said the report.
Food is generally exempt from VAT but the report said "it would not be surprising to see food inflation creep higher over the coming months as there is no sign of commodity prices easing in the near term".
Commodities are being driven higher by the global economic recovery and increased demand from "emerging market" countries, such as China, Brazil, India and Russia.
The situation was made worse by poor harvests caused by wildfires in Russia, and floods in Australia. Some of the biggest annual hikes are for Robusta coffee beans, up 52%, and wheat, up 45%, and cattle products, up 24%. Meat prices are being pushed up by an 80% rise in animal feed costs.