Shop price inflation rate increases
Consumers have been warned that more price hikes are on the way after the rate of inflation of goods sold in shops increased in December.
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 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 while food is generally exempt from VAT, 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".
The price of footwear and clothes continued to decrease despite the cost of cotton having nearly doubled in the past year, while retailer Next warned it expects to put up its prices by 8% this year.
Electrical goods also dropped in price as retailers put on promotions to entice shoppers to buy before the VAT rise, although the annual deflation slowed from 2.7% in November to 1.9% in December. But furniture and floor coverings inflation accelerated to 1.9%, its highest rate since May, and the cost of books and home entertainment also continued to rise.