Retail Leaders Forecast 4.2 Percent Hike in Food Prices

January 9, 2025 TruthUSA

Retailers urged the government to mitigate price pressures to minimise the costs passed down to customers.

Food prices are projected to rise by 4.2 percent in the latter half of the year, amid pressures brought on by Budget measures, the retail industry has warned.

The forecast of accelerating food price inflation comes as retailers face a reported £7 billion in additional costs in 2025 because of tax changes, announced in October. These include higher employer national insurance contributions, minimum wage, and new packaging levies.

The shop price inflation data, released by the British Retail Consortium (BRC) on Thursday, showed lower prices in December. Compared with the same period last year, shop prices overall were 1 percent lower last month, a deepening of November’s 0.6 percent deflation.

Shop price annual growth remained at its lowest rate since August 2021. This, however, was influenced by the Black Friday discounting period.

“Retailers discounted heavily for Black Friday this year as they attempted to make up for weaker sales earlier in the year. However, the later Black Friday timing brought many of the non-food discounts into the measurement period, making non-food prices look more deflationary than the underlying trend,” said the BRC Chief Executive Helen Dickinson.

She added that with food inflation unchanged at 1.8 percent in December and upcoming price pressures on the industry, shop price deflation “is likely to become a thing of the past.”

Last month, the non-food category accounted for -2.4 percent deflation, edging down from -1.8 percent in November. Industry leaders have predicted a “firm” return to inflation in the non-food sector in the second part of 2025.

Operating on Slim Margins

Dickinson has urged the government to mitigate price pressures and ensure that reforms to business rates don’t result in higher bills for businesses.

Under Budget reforms, retail, hospitality, and leisure properties with rateable values below £500,000 will be taxed under permanently lower rates from 2026–2027.

This will be funded by higher taxes on properties with a rateable value of £500,000 and above, including large distribution warehouses, often operated by supermarkets and retails firms.

Chancellor Rachel Reeves also said the plastic packaging tax will rise from £217.85 to £223.69 from April 2025.

The BRC has previously asked the government to reconsider the timelines for the packaging levy and ensure the business rates tax policy offers “a meaningful reduction for all retailers as early as possible.”

“Retail already operates on slim margins, so these new costs will inevitably lead to higher prices,” she warned.

Higher Prices for Shoppers

The head of Retailer and Business Insight at NielsenIQ, Mike Watkins, said that in December shoppers benefited from lower inflation than last year, but added that “higher household costs are unlikely to dissipate anytime soon.”

He urged retailers to “carefully manage any inflationary pressure in the months ahead.”

A growing number of British firms expect sales growth to slow and prices to rise in the new financial year as a result of Budget measures.

Bakery chain Greggs has said it is facing a bigger expenses bill this year from measures including higher wages for staff.

Greggs Chief Executive Roisin Currie said the company had to “pass a minimum amount of price rises onto customers.”

Multinational retailer Next said on Thursday it expects sales growth to slow to 3.5 percent and for the group’s profits to rise by a more muted 3.6 percent to £1.05 billion.

Heads of Amazon, Aldi, Boots, Marks & Spencer, Next, and Primark addressed Reeves in November, warning that the industry won’t be able to cope with the hit from higher employer national insurance contributions and living wage increases.

In October, Sainsbury’s and Asda bosses said that a “barrage of costs” coming from tax hikes will translate into higher prices for consumers.

PA Media contributed to this report.

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