Retail industry warns of rising shop prices as food inflation his 11-month high

UK food price inflation rose to its highest in 11 months in April, according to fresh industry data, as companies nudged prices up to protect profit margins.

Overall shop price inflation was down 0.1% year-on-year in April, up from -0.4% in March, according to the latest shop price index from the British Retail Consortium and NielsenIQ.

Food inflation increased to 2.6% year-on-year, its highest level since May last year, with fresh food inflation rising to 1.8% from 1.4% in March and ambient food inflation remaining unchanged at 3.7%.

Non-food prices remained in deflation mode, though this also moved closer to zero, reaching -1.4% in April from -1.9% a month earlier.

"The days of shop price deflation look numbered," said BRC chief executive Helen Dickinson, with food inflation rising and non-food deflation easing.

"Everyday essentials including bread, meat, and fish, all increased prices on the month," she said, noting that this came in the same month that retailers face "a mountain" of new costs in the form of higher employer National Insurance Contributions and increases to national minimum wage rates.

Dickinson added: "Despite price competition heating up, retailers are unable to absorb the total impact of these £5bn of employment costs and the additional £2bn costs when the new packaging tax comes into effect in October."

Mike Watkins, head of retailer and business insight at NielsenIQ, said: "Shoppers continue to benefit from lower shop price inflation than a year ago, but prices are slowly rising across supply chains, so retailers will be looking at ways to mitigate this as far as possible."

Many large retailers are still making large profits. Tesco, for example, reported a £3.1 billion profit for the past year to February, up 10.6% year-on-year, and warned that the increase in new costs and recent upping of competition from Asda will only dent its profit to around £2.7-3 billion for the current year.

In other words, the price rises are coming as supermarkets look to soften the hits on their bottom line. 

In non-food, Next reported a £1 billion profit.