Retailers say tax rises could further fuel inflation as shop prices jump | Retail industry

Retailers have told the government that tax rises could further fuel inflation as the pace of shop price rises stepped up in September with increases on home improvement and gardening goods offsetting stabilising food prices.

Annual shop price inflation rose to 1.4% in September, up from 0.9% in August, according to the latest monthly report from the British Retail Consortium (BRC) and analysts NIQ.

A year and a half of deflation on non-food goods appears set to come to an end, according to the trade body, with prices just 0.1% lower year on year in September compared with an annual drop of 0.8% in August.

Falling prices on back-to-school items such as laptops dampened inflation on other household items including DIY goods. Annual food price inflation, which has been steadily accelerating all year, levelled out at 4.2% in September – the same rate as in August.

Helen Dickinson, the BRC chief executive, said: “Households are finding shopping increasingly expensive. The impact on retailers and their supply chain of both global factors and higher national insurance and wage costs is playing out in prices for consumers.”

She said high energy and labour costs, including the government’s rise in employers’ national insurance payments (NICs), continued to push up input prices for many producers, including farmers, with dairy and beef prices remaining high.

However, Mike Watkins, the head of retailer and business insight at NIQ, said low consumer confidence meant retailers were likely to have to continue offering promotions and deals to ring up sales.

“With inflationary pressures persisting, many shoppers remain concerned about their personal finances and are becoming increasingly price-sensitive,” he said.

The BRC figures are the latest indication that food inflation has peaked, with retailers expecting it to ease late this year or from early 2026.

However, earlier this month the Bank of England held off from implementing a cut in interest rates on fears that rising food prices were putting upwards pressure on headline inflation.

Rachel Reeves has hinted that tax rises or spending cuts could be on the way as the chancellor faces having to find up to £30bn to plug a spending gap amid slower than hoped for growth and expected changes to official calculations on UK productivity.

“The new packaging tax, set to take effect in October, will put further upward pressure on inflation,” Dickinson said. “While retailers continue to absorb higher costs as much as possible and deliver value to customers, any further tax rises in the upcoming budget would keep shop prices higher for longer.

“Ultimately, it is British households who will bear the consequences – positive or negative – of the chancellor’s decisions.”

Retailers face a £7bn increase in costs this year, according to the BRC, after changes were introduced in April to employers’ NICs, packaging levies and the legal minimum wage.