Retailers have communicated to the government that potential tax increases may exacerbate inflation, as shop price inflation rose to 1.4% in September, up from 0.9% in August. This data comes from the latest report by the British Retail Consortium (BRC) and analysts NIQ. The report indicates an end to a year-and-a-half period of deflation for non-food items, with prices showing only a 0.1% decrease year-on-year in September, compared to a larger drop of 0.8% in August.
Notably, price reductions on back-to-school products, such as laptops, have mitigated inflation impacts on other household items, including DIY supplies. Meanwhile, annual food price inflation has leveled off at 4.2% in September, consistent with the previous month. BRC Chief Executive Helen Dickinson highlighted that households are feeling the financial strain of shopping, attributing rising costs to global factors and increased national insurance and wage expenses affecting the supply chain.
In context, rising energy and labor costs, including the recent increase in employers’ national insurance payments, have been noted as significant contributors to the elevated input prices faced by producers, including those in the agricultural sector. Conversely, Mike Watkins from NIQ noted that low consumer confidence may compel retailers to offer promotions to drive sales, as shoppers remain concerned about their finances and exhibit heightened price sensitivity.
The BRC’s current figures suggest that food inflation may have peaked but highlight the continued pressure on the economy. Recent decisions by the Bank of England to maintain interest rates were influenced by fears of rising food prices contributing to overall inflation.
Amid ongoing challenges, Chancellor Rachel Reeves indicated that tax increases or spending cuts may be necessary to address a potential £30 billion spending gap, linked to slower economic growth. Dickinson expressed concern that the new packaging tax, which will take effect in October, might further push shop prices upward, impacting consumers directly. According to the BRC, retailers are projected to face an increase in costs amounting to £7 billion this year due to various financial changes implemented earlier.
Source: https://www.theguardian.com/business/2025/sep/30/retailers-tax-rises-further-fuel-inflation-shop-prices-jump