The British Retail Consortium (BRC) has reported shop price inflation was up 2.3% in January, while many retailers held off passing the VAT increase on to consumers in the hope of stimulating demand.
As a result, inflation has not risen as fast as had anticipated. The large number of discounts and promotions meant that the increase in VAT on 1 January was lost among deeper discounts.
Stephen Robertson, British Retail Consortium director general, said: “January’s VAT increase was lost among a huge number of discounts and promotions. We would have expected non-food inflation to be higher because of the VAT rate reversal, but many shops held off passing the extra costs onto their customers.
“Food inflation slowed for the first time since August 2009. It’s now only a third of last year’s high. This has largely been driven by a slowdown in fresh food inflation, particularly for meat and milk.
“But the cost of commodities, such as sugar and coca, has significantly increased in the past year which will put upward pressure on food inflation if it continues.”
