Retailers have blamed rising energy bills and the chancellor Rachel Reeves’s hike in employers’ national insurance contributions for a jump in food prices, as suppliers and supermarkets struggle to absorb higher costs.
The British Retail Consortium (BRC), the trade body for retailers, said prices across all goods in shops rose by 1.5% in January compared with the same month last year, up from a 0.7% rise in December and higher than the 0.7% increase economists had been expecting. It is also above the three-month average of 0.9%.
Food prices increased at a rate of 3.9% year on year in January, up from 3.3% in December, the BRC’s monthly price monitor showed. Fresh food inflation rose to 4.4% over the same period.
Helen Dickinson, the chief executive of the BRC, said: “Any suggestion that inflation has peaked is simply not borne out by these figures. Shop price inflation jumped this month due to high business energy costs and the hike to national insurance continuing to feed through to prices.”
She added: “Meat, fish and fruit were particularly affected, also reflecting weak supply and stronger demand, while non-food categories, including furniture, flooring, and health and beauty, all saw inflation rise.”
In her first budget after Labour returned to power in 2024, Reevesincreased the rate of employers’ national insurance contributions (NICs) from 13.8% to 15% from last April. The threshold for NICs being levied was also cut from £9,100 to £5,000 a year. The national minimum wage rose by 6.7% in April.
Retailers have previously said the rise would force them to pass on the higher cost of employment to customers and would add to the UK’s inflationary pressures.
The BRC has previously conducted analysis that showed the combination of these two hikes meant the cost to a retailer of employing a full-time minimum wage worker had increased by 10%, while for part-time workers itwas a 13% increase. It said those increases were now being felt throughout a supplier’s food chain.
“It is a challenging time for households. Retailers do what they can to keep prices down in a competitive market, but thin margins and rising costs of government policy make it harder,” Dickinson said.
A Treasury spokesperson said: “The fair and necessary decisions we made at this budget and the last mean we can deliver on the country’s priorities – cutting waiting lists, cutting debt and borrowing, and cutting the cost of living.
“We know that working people are struggling with rising prices and the cost of living. That’s why we are delivering stability, cutting borrowing and getting inflation down. The Bank of England has forecast that food price inflation peaked in December and is expected to fall.”
The BRC said “spiralling energy charges” for retailers and suppliers, partly caused by rising green levies, were also “flowing through into retail prices”.
The report added to growing signs that inflation in the UK was proving more sticky than forecasters had hoped.
Official figures released last week showed inflation rose to 3.4% in December, up from 3.2% in November. Meanwhile, a closely watched survey – the purchasing managers’ index compiled by S&P Global – said UK businesses reported a sharp rise in costs in January, with the overall pace of inflation unchanged from December’s seven-month high.
Inflation in non-food items was far slower than food, at 0.3% in the year to January. This was a step up from the 0.6% decline in prices in December and above the three-month average of -0.3%.
Mike Watkins, the head of retailer and business insight at NIQ, which helps compile the monthly BRC report, said cautious consumer spending meant retailers were likely to continue offering discounts past the typical winter sale period.
“Shoppers are always cautious about spending in January and this will not be helped by the continuation of inflation. However, there are still savings to be made at the checkout as some non-food retailers are still on promotion and many food retailers continue to reduce prices on everyday items as a way to drive footfall,” he said.
