Wednesday, February 9, 2011

Retailers have to bear the impact of VAT hike

VAT hikeRetailers have to bear at least some of the effect of the VAT hike on prices, as stated by the British Retail Consortium. But such action won’t go on for an indefinite period, it warned, and inflation is still going up.

The news came with the Monetary Policy Committee of Bank of England meeting to discuss its next move on interest rates. Continuous high and mounting inflation is putting extra burden on the committee to act to gain credibility among the markets and consumers.

Overall, the rate of shop price inflation annually accelerated from 2.1 per cent to two and a half per cent between the month of December and month of January, with food inflation up from four per cent to 4.6 per cent and non-food items going up by 1.3 per cent, against 1.1 per cent.

The degree by which the rise in global commodity prices, particularly oil and food is being fed through to the high street is of utmost importance to the Bank, though notoriously difficult to judge.

The Bank has projected that the increase in CPI inflation from the beginning of 2010 to the end of this year as between a half a percentage point and one and a half percentage points. The next bulletin on consumer prices from the Office for National Statistics will be published next Tuesday, and may give some additional information on the impact of the VAT rise at that point.

The director general of the British Retail Consortium, Stephen Robertson had warned that the willingness and ability of retailers to absorb rises in taxes and world commodity prices is not without limit.

The VAT rise did have little effect on shop prices in January. Due to poor Christmas trading retailers were left with stock to shift. The impact of the rise was almost entirely lost in the midst of the unusually high number of post- Christmas discounts and promotions Robertson said.

The rate of inflation for non-food goods, specially the ones coming under VAT was just 0.2 percentage points higher after the VAT rise than before. It pointed out that retailers generally took the hit on behalf of customers.
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