Food prices push shop inflation up

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Another surge in the price of food has pushed shop inflation to its highest rate for more than two and half years, an industry body said today.

Shop prices in June rose by 2.9% compared with a year ago, with food prices rising by 5.7%, according to the British Retail Consortium, with last month's increase the fastest in the overall index since October 2008.

Month-on-month, prices rose by 0.5% in June, with food prices ahead by 0.6%, the same as May, while non-food product inflation rose by 0.5% compared with a decline in May.

The BRC said shop inflation is being driven by surging world commodity prices, the effect of the weak pound and higher VAT - all factors that are all outside retailers' control.

It added the figures highlight the squeeze in progress on household incomes and retailers, who are struggling to pass on higher wholesale costs.

A number of high profile chains have recently gone into administration including Jane Norman and TJ Hughes, a trend which the BRC said reflects the weakness in consumer spending and the growing use of discounts to generate sales at the expense of revenues.

Some 39% of grocery spending is now on goods on promotion, which shows "there are lots of offers available" and "savvy shoppers are taking advantage to minimise the impact on real-life bills".

A number of retailers, including Marks & Spencer, have started sales two weeks earlier than 2010, with the result that some products, such as clothing and footwear, are now cheaper than a year ago.

Prices of electrical goods fell last month, though this was outweighed by sharp rises in DIY products, gardening and hardware, and furniture and flooring.

Both fresh and ambient food - packet and tinned food - prices rose in June with fresh food prices 4.7% higher than a year earlier and ambient food 7.2% ahead.

Mike Watkins, senior manager, retailer services, for Nielsen, which compiled the survey with the BRC, said: "With shoppers indicating that they are becoming even more cautious about spending, this will impact discretionary spend further so all retailers will have to keep a focus on managing any cost price increases over the next six months."

Recent data from the Office of National Statistics showed real household disposable income fell by 2.7% in the year to the end of March, the biggest decline year-on-year for 34 years.