Retailers warn of austerity inflation
By Peter Wozniak
Government austerity measures may not stem rising inflation, retailers have warned.
The news came as the Shop Price Index (SPI) rose to 2.2% in October.
The report by Nielsen and the British Retail Consortium (BRC) showed the SPI rising 0.3% since last month, while food inflation rose to 4.4%.
Overall levels of inflation meanwhile have remained above the government’s target of two per cent for ten months in a row.
The report stated: “Despite the extensive fiscal consolidation now in trail, policymakers remain concerned that high inflation expectations will become entrenched, with the possibility of creating a wage-price spiral.”
Claiming rising commodity prices were to blame, the BRC insisted customers were being protected from price increases for the time being, with companies offering promotions in the run-up to Christmas, but warned that the upcoming cuts would mean a slow-up in demand.
Stephen Robertson, director general of the BRC said: “Weak consumer confidence and a sluggish housing market mean retailers are competing even more fiercely for the limited discretionary spending available.
“That situation is unlikely to change in the run up to Christmas, with retailers clamouring to win the attention of cash-strapped consumers.”
The retailers toned down fears that inflation could rise to 2008 levels at the height of the economic crisis, but said the looming impacts of wide-spread job losses represented an unknown quantity for the market, while the VAT rise coming in January would exert even more inflationary pressure.
The report added: “A combination of price inflation and higher wage demands is likely to threaten retailers’ ability to continue creating jobs, necessary for supporting the economic recovery.”
The warning makes for difficult news for the government, which is counting on a strong private sector-driven recovery, arguing it can soak up the 490,000 predicted public sector job losses from the spending review.
Analysts expect any recovery to also have to contend with job losses in private sector companies which depend on government contracts.
