Summary:
- UK shop price inflation ticks up to 1.2% y/y in March (prev. 1.1%)
- Retailers warn Iran war is beginning to lift supply chain costs
- Food inflation eases slightly, non-food prices turn positive
- BRC flags risk of further inflation from energy and logistics pressures
- New labour and food regulations seen adding to cost pressures
- BoE watching food prices closely as inflation expectations rise
UK shop price inflation edged higher in March, with retailers warning that rising costs linked to the Middle East conflict are beginning to feed through supply chains and could push prices higher in the months ahead.
Data from the British Retail Consortium showed shop price inflation rose to 1.2% year-on-year, up from 1.1% in February, though still slightly below its recent three-month average. The increase comes shortly after the outbreak of the Iran war, with early signs that higher energy and transport costs are starting to impact retailers.
Food price inflation eased modestly to 3.4% from 3.5% previously, driven in part by lower dairy prices. However, non-food prices moved back into positive territory, rising 0.1% after a decline in February, suggesting broader pricing pressures may be stabilising or beginning to rebuild.
Retailers warned that the evolving geopolitical situation poses upside risks to inflation, as higher input and logistics costs work their way through supply chains. While firms are attempting to absorb some of these pressures, the industry expects that not all cost increases can be contained.
Beyond geopolitical factors, the sector is also facing domestic cost pressures, including new labour market measures and regulations tied to healthier food standards, both of which are expected to raise operating expenses.
The data will be closely monitored by the Bank of England, which has emphasised the importance of food prices in shaping consumer inflation expectations. Recent surveys suggest expectations have risen to their highest levels since 2023, increasing the risk that temporary price shocks become more persistent.
While the current increase in shop price inflation remains modest, the combination of geopolitical disruption and domestic cost pressures points to a more challenging inflation outlook ahead, particularly if energy prices remain elevated.
This article was written by Eamonn Sheridan at investinglive.com.
