Latest data shows retailers absorbing VAT hike

Overall shop price inflation increased to 2.5 percent in January, up from 2.1 percent in December, in what is one of the clearest indications yet that retailers have been absorbing the VAT rise.

The latest BRC-Nielsen retail index shows that non-food inflation increased to 1.3 percent from 1.1 percent in December.

Stephen Robertson, director general of the British Retail Consortium, said the VAT rise had little effect on shop prices in January.

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He added that poor Christmas trading left retailers with stock to shift, meaning the impact of the increase was almost entirely lost among the unusually high number of post-Christmas discounts and promotions.

“The rate of inflation for non-food goods — mainly the ones subject to VAT — was only 0.2 percentage points higher after the VAT rise than before, showing retailers generally took the hit on behalf of customers. But, with a range of other cost pressures also squeezing margins, retailers will struggle to go on absorbing it,” warned Robertson.

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