Shop price inflation hits 1.7%
The British Retail Consortium has confirmed that food prices were behind the 1.7% increase in shop prices in August compared to the same period in 2009. This is an increase from the 1.5% annual rise seen in July although the 3.8% increase in food prices in August is as a direct consequence of problems in the commodities market where the Russian export ban on wheat is beginning to hit home.
The problem for the UK government and the Bank of England is the very fact that a number of issues impacting upon UK shop prices and UK shop price inflation are out of their control. As a consequence it is difficult to forecast when we will see a reduction in for example wheat prices and when we can expect shop price inflation to fall back. This is a major concern for the UK economy because ultimately high inflation reduces the overall spending power of UK consumers and UK businesses and impacts on profitability going forward.
However, we should refrain from taking individual monthly readings in isolation until there is some kind of trend formed which can prove useful. The Bank of England and the UK government will be praying that shop price inflation falls in the short to medium term because the UK economy is in for a very difficult time with budget cuts and tax rises about to kick in.
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