Shop prices fell again in March but a retail body has warned higher business taxes mean inflation is on the horizon.
Retail prices have been in deflation since August 2024, primarily driven by deep discounting by non-food retailers.
Shop price deflation was 0.4 per cent year on year in March, against a decline of 0.7 per cent in February, above the three-month average of minus 0.6 per cent, according to the British Retail Consortium (BRC).
Non-food deflation was 1.9 per cent, while food prices increased by 2.4 per cent in the year to March.
Chief executive of the BRC, Helen Dickinson, said deflation has been driven by “weak consumer demand”.
But Dickinson warned to expect inflation in the coming months as cost pressures on businesses begin to bite.
“Retailers continue to do all they can to protect customers from the cost pressures bearing down on the industry… [but] with retailers bracing for significant extra costs which kick in later this week as a result of the Budget, inflation will likely accelerate in the coming months,” Dickinson said.
“Along with new packaging taxes later this year, retailers will be shouldering an additional £7bn in costs. It is crucial that the Employment Rights Bill and business rates reform don’t further inflate costs and increase red tape.”
Overall inflation in the UK economy hit 2.8 per cent in February, which was one of the reasons the Bank of England held interest rates at 4.5 per cent in March.
However, analysts have predicted two more rate cuts by the Bank during 2025, which should ease some of the pressure on retailers as the cost of borrowing falls and consumers start to spend more.
Head of business insight at NielsenIQ, Mike Watkins, said prices were unlikely to start to rise before Easter.
“There is competition on the high street as retailers look to pull in reluctant shoppers with seasonal promotions… retailers may need some focused price cuts to help footfall in the run up to the late Easter.”
