UK shop prices rose 1.4% in September, the fastest increase in 19 months

UK shoppers are being forced to pay more at the tills after shop price inflation increased to its highest level in 19 months. Prices increased by 1.4% in September, according to industry figures, up from 0.9% in August.

The increase was driven by DIY and gardening products, which posted the biggest gains. There were some back-to-school items, such as laptops, that saw a price decrease, but it wasn’t enough to offset larger cost pressures.

The BRC stated that the spike reflects increased costs associated with running shops. Retailers are battling changes to payroll taxes, a national insurance increase, and bigger wage bills.

Helen Dickinson, the chief executive of the BRC, said households were already struggling and warned that further tax rises in next month’s budget would keep shop prices higher for longer.

Government decisions push prices higher

Next month, retailers will face a new packaging tax, which many believe will only exacerbate inflation in stores. Businesses argue that the tax is in addition to existing obligations, and families will ultimately end up paying more.

Last month, in an open letter, more than 60 retailers, including Tesco and John Lewis, called on the government not to raise taxes further through an autumn budget. They insisted that soaring costs are squeezing profits and jacking up prices for ordinary households.

Some businesses are already beginning to feel the pinch. John Lewis reported deepening losses earlier this month, citing tens of millions of pounds in added costs from packaging rules and employment taxes. Next Plc has also cautioned that sales will ease in the second half of the year, as shoppers tighten their purse strings.

The new numbers arrive at a sensitive time for the Bank of England (BoE). Policymakers are debating whether, or when, to reduce interest rates again. It’s that sticky inflation that makes this decision more difficult.

Food inflation stabilized in September at 4.2% after climbing for seven months. While there is a glimmer of stability after the rollercoaster year, prices remain high for many producers, with energy bills, feed, and labor all contributing to increased production costs. Dairy and beef are still some of the priciest staples.

Prices of non-food items, which had been on a downward slide for over a year, have started to stabilize. They fell by only 0.1% in September compared to the same period a year earlier, significantly less than in past months. Analysts say it suggests the era of falling non-food prices is over.

BoE policymakers are concerned that sustained price pressure may also lead to higher wage demands, pushing up inflation more strongly. This could prompt the central bank to maintain higher interest rates for a longer period, which may put further pressure on mortgage holders and businesses.

Uncertainty clouds golden quarter

Yet for the first time in three years, confidence is cracking. Families are still faced with food bills, energy prices, and mortgage repayments that are far higher than before the COVID-19 pandemic. Lower-income households will also have less to spend on things they don’t need.

Industry analysts have warned that shoppers could trade down to cheaper labels or hold off on making big-ticket purchases. Some are expected to cut back on gifts and splurge on essentials, even over the holidays. Retailers are concerned that it will leave them with unsold inventory and reduced profits at a time of year when they rely on robust sales.

The autumn budget is a formative occasion. If the government levies new taxes on retailers — or leaves old ones in place — prices here will likely remain high until Christmas. That, in turn, may further erode consumer confidence at a moment when stores are poised to kick off sales and promotions.

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