Selling prices accelerate at a record pace

SHOP price inflation accelerated in August at its fastest rate since February 1992, the CBI revealed yesterday, raising the ugly spectre of persistently rising prices and creating even more of a headache for the Bank of England.

In its August distributive trades survey, the business lobby reported that a net 58 per cent of firms said average selling prices had risen compared to a year ago. The looming VAT hike to 20 per cent in January, combined with rising food prices, will only create more inflationary pressures.

While the outlook for consumer spending remains uncertain, retailers are at their most positive about the future since May 2004, with a net 22 per cent of firms forecasting that the overall business situation will improve over the next three months.

More than half of the retailers surveyed said that the volume of sales rose during the first two weeks of August, compared to just 18 per cent experiencing a decline.

Sub-sectors that saw the strongest growth included clothing, grocers, and durable household goods, which the CBI said has been helped by better weather at the beginning of the month and the summer holidays.

Lai Wah Co, CBI head of economic analysis, said: “Better sales growth continued on the high street in early August, and retailers are upbeat about prospects in the coming three months.”

“However, the broader outlook for consumer spending is still uncertain, given the VAT rise next year, subdued pay awards and the feed-through of public spending cuts to job losses, ” she added.

Analysts said that this boded well for third quarter GDP growth, which had been expected to slump after a stunning second quarter. Societe Generale’s Brian Hilliard said that yesterday’s CBI data pointed to further strong consumption growth in the three months to October.