Dec 8, 2010
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Discounts push November shop price inflation lower

Dec 8, 2010

(Reuters) - British shop price inflation dipped in November as retailers offered discounts in the run up to Christmas, but it is likely to rise in 2011 due to a hike in VAT and expected higher energy costs, data showed on Wednesday.

The British Retail Consortium said shop price inflation had eased in November to 2.0 percent from 2.2 percent in October as food inflation slowed for the first time in five months.

The figures show a slight easing in the pressures that have kept the broader official consumer price inflation index well above the Bank of England's 2 percent target for over a year, as officials start a two-day Monetary Policy Committee meeting.

But the BRC said further inflationary pressure could come from an expected rise in energy costs, a rise in value-added tax and depleted inventories in soya beans and corn.

Food inflation fell to 4.0 percent from 4.4 percent, due to competition amongst grocers and a stabilisation in commodity prices which resulted in a sharp fall in fresh food inflation.

A Nielsen Homescan survey from the four weeks to the end of October showed 38 percent of fast moving consumer goods being on promotion, an all-time high, which the BRC expects to intensify in the run up to Christmas.

Non-food inflation eased to 0.9 percent from 1.1 percent, driven by deflation in traditional Christmas products such as clothing, footwear and electricals, as retailers started offering discounts earlier than normal.

Britain's official CPI rate rose to 3.2 percent in October, well above the BoE's target. CPI includes a wider range of items than the BRC index, such as fuel, utilities and services.

"We remain concerned about the underlying inflationary pressures and the VAT increase in January and whether this impacts the motivation of the already cautious consumer," said Mike Watson of Nielsen, which conducts the survey.

"In the run up to 31 December we expect retailers to keep promoting heavily and discounting to lower levels."

VAT will rise at the start of next year to 20 percent.

(Reporting by Kate Holton; editing by Ron Askew)

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