Retailers contain VAT effect

16 February 2010

Reacting to today's (Tuesday's) inflation figures, the British Retail Consortium (BRC) said retailers have protected customers from much of the effect of the VAT rise by keeping prices down.

The prices of petrol, other transport costs and insurance have been the main factors driving overall inflation. VAT has contributed but it's clear the effect on shop prices has largely been lost in a blizzard of discounts and promotions.

Richard Lim, British Retail Consortium Economist, said: "The inflation rate is now at its highest for 14 months. The increase in VAT was a major factor contributing to the overall rate of inflation, but the effect on shop prices has largely been lost in a blizzard of promotions and discounts.

"The prices of non-food goods, the ones generally subject to VAT, have gone up much less than if retailers had just passed all the VAT increase on to customers.

"The official figures show clothing and footwear are 4.5 per cent cheaper than this time last year. Food inflation remains relatively low at 1.4 per cent – around a tenth of what it was last year.

"By contrast petrol prices, other transport costs and insurance are all up by a big margin on the year, driving overall inflation."

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