Shop price inflation rises to 2.5%

Food inflation jumped from 4% in December to 4.6% last month – the highest rate in 18 months.

Non-food price inflation increased month-on-month from 1.1% to 1.3% in January.

However Stephen Robertson, director general of the British Retail Consortium, which compiled the figures, said that due to the VAT rise, prices would have risen more sharply in January had it not been for retailers discounting heavily due to a “poor Christmas”.

“The VAT rise had little effect on shop prices in January,” said Robertson. “Poor Christmas trading left retailers with stock to shift.  The impact of the increase was almost entirely lost among the unusually high number of post-Christmas discounts and promotions.”

He added that as the rate of inflation for non-food goods - mainly the ones subject to VAT - was only 0.2 percentage points higher after the VAT rise than before, it showed retailers “generally took the hit on behalf of customers”.

But he warned: “With a range of other cost pressures also squeezing margins, retailers will struggle to go on absorbing it.”

Mike Watkins, senior manager, retailer services at Nielsen, which helped compile the figures, said: “Inflationary pressures continue, in particular in food which is why the promotional discounts given by food retailers still remain at an all time high.

“We can expect shoppers to manage their household budgets tightly during  2011.”