Price deflation on non-food items has hit a four-year low, suggesting cost pressures are starting to bite for fashion and furniture retailers.
According to figures from the British Retail Consortium (BRC) and Nielsen, prices on non-food items fell by 1.3 per cent in August, which was the slowest rate of deflation since April 2013. In July, deflation stood at 1.5 per cent.
Retailers have been battling rising costs from the devaluation of sterling, business rates and the national living wage.
"The combination of these pressures has eroded profit margins and retailers are having to pass through some of these costs to consumers," said Richard Lim, chief executive of Retail Economics.
“What’s more, against a backdrop of slowing consumer demand the trading environment for retailers in the second half of the year will be extremely challenging.”
Overall shop prices fell 0.3 per cent, but food prices remained inflationary, up by 1.3 per cent year-on-year.
Helen Dickinson, chief executive of the BRC, said: "The seasonal availability of fruit and vegetables from UK suppliers is currently shielding shoppers from the impact of higher import prices.
"However, as winter approaches and our dependence shifts to imported goods, that will change."
Mike Watkins, head of retailer and business insight at Nielsen, warned that consumer sentiment was "on the turn" and that shoppers were becoming more cautious about spending on big-ticket items.