Prices in British shops fell a bit less sharply in January than in December and food costs rose at the fastest monthly pace since April last year, according to a latest survey.
The British Retail Consortium warned of the risk of further price pressure ahead as the sector copes with increased costs including from finance minister Rachel Reeves' decision to add to employers' tax burden in her October budget.
Annual shop price deflation of 0.7% this month was less than in December when prices were down by 1.0%, the sharpest drop in more than three years, the BRC said.
Food prices were up by a monthly 0.5% in January, a stronger rise than December's 0.1% increase. Overall prices fell by 0.4% between December and January.
Helen Dickinson, chief executive of the BRC, said extensive discounting by retailers in January was particularly significant in furniture and fashion.
"This month's figures also showed early signs of what is to come, with month on month food prices rising at their fastest pace since April last year," Dickinson said.
Price Hikes
Retailers might have to push up prices in response to the higher social security contribution requirements announced by Reeves along with an increase in the minimum wage and a new packaging levy, she said.
"Without action, UK households will feel the effects," Dickinson said, calling on the government to offset the increase in costs for the sector by ensuring retailers do not have to pay more in property taxes.
Britain's headline rate of inflation fell to 2.5% in December but is expected to rise again with some economists forecasting that it will hit 3% in data for January.
British retailers' Christmas trading updates have been mixed.
Tesco, Britain's biggest supermarket group, reported strong festive trading. However, trading was more subdued at retailers skewed towards lower-income shoppers, such as clothing retailer Primark, baker Greggs and discounters Poundland and B&M.
Read More: ‘If Primark Is Struggling, You Know The UK Retail Sector Is In Trouble’ – AJ Bell
