Retail prices set to rise by an average 5% to 8% in 2017, think tank predicts

Retail prices will increase by an average of 5% to 8% over the course of 2017, with the question remaining over how much will be passed on to consumers, a think tank has suggested.

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The KPMG/Ipsos Retail Think Tank (RTT) has predicted that retail growth will stagnate overall next year as a result of political uncertainty fuelled by Brexit, events in Europe and a new US president.

With UK consumer price inflation set to rise to 2.5% to 3% next year, any growth in non-discretionary retail - including food and grocery - will be offset by a decline in discretionary spending, resulting in overall retail growth of 0.5% in the year, the report said.

The RTT noted that until now UK shoppers remained "pretty relaxed" about the results of the Brexit referendum, with consumer spending on the rise over the final months of 2016.

"However, this may change as Brexit negotiations, and the changing political landscape across Europe, crystallise," the report said.

RTT co-chairman and KPMG's UK head of retail, Paul Martin, said: "You could argue that the 'Great British' consumer has broadly ignored the result of the Brexit referendum, with consumer spending continuing to grow over the final months of the year.

"This is very likely to change in 2017 and the sector will face much stronger headwinds.

"We will see inflation rise, potentially up to 3% by the end of the year. In conjunction with continued FX rate fluctuations, prices will rise.

"The question remains how much will be absorbed within the supplier base, by retailers and actually be passed on to the consumer.

"A conservative view at the moment is that this will amount to 5-8% price increases over the course of the year, understandably varying across categories."

Maureen Hinton, from Verdict Retail, said: "Retail expenditure will be stronger in 2017 than in 2016, but not because of increased consumer demand but because of price inflation.

"The higher price of imported goods following the EU referendum, and the fall in the UK pound, has been masked by currency hedging in 2016, but this starts to unravel in Q2 2017 and all retailers, struggling with cost inflation and squeezed margins, will be forced into passing on price rises to the consumer."

Members listed their top concerns as rising consumer price inflation, increased costs to retailers, diminishing consumer and business confidence and political uncertainty.

The RTT said retailers were likely to focus on increased customer engagement as it becomes increasingly difficult to compete on price.

Shopping: when spending more isn't always better
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Shopping: when spending more isn't always better

The wine world is notoriously snobby, and the experts will tell you that there’s no way to buy a good bottle without spending at least £25. However, a study in 2011 at the Edinburgh International Science Fair demonstrated that people could only tell the difference between a cheap and expensive wine 53% of the time - which is roughly the result you'd get from flipping a coin.

Instead of focusing on price, it’s worth looking for wine awards. In December last year, for example, the International Wine Challenge awarded silver medals to Tesco Finest Fiano (selling for £5.49) and the Tesco Finest Montepulciano d’Abruzzo (priced at £5.99).

The price you’ll pay for your hotel room depends partly on type of room you choose, but also on a host of things that have nothing at all to do with the room itself. If you shop carefully, therefore, you can get more for less.

One of the most effective approaches is to use a ‘secret hotels’ service, which gives you details of the location and facilities, but doesn't tell you the name of the hotel you are booking until you have paid.

This enables hotels to slash their prices by as much as 50% without damaging their brand. If you book this way you can easily get a junior suite for less than the advertised double room rate at the same hotel.

Logically, the longer the interest-free period on your credit card, the more you’ll save. However, it doesn't always work out that way.

If you need to borrow for exactly the length of the interest-free period, then it’s a great option, but if you need to borrow for a longer or shorter time, it's a waste of money.

You have roughly a 40% chance of being tempted by the longer interest-free period into failing to pay off the debt in time - and being hit with high interest charges. In this instance, you may be better off with a long-term low rate.

Meanwhile, if you are one of the third of people who tend to pay off their card early, then you'd be better off paying a smaller balance transfer fee for a card with a shorter interest-free period.

If you need to buy new clothes, then choosing a product that has done minimal damage to the environment is clearly a kinder option than buying from a manufacturer that doesn't care about its impact on the world.

However, you will usually pay more for an environmentally-friendly brand, and there’s a far cheaper option that’s even kinder to the environment: buying second-hand clothes.

Your local charity shops will have items in perfect condition that would otherwise be going to landfill, so by buying them you meet three great criteria: you're saving the planet, saving money and helping a good cause.

You can pay anything up to 1,000 times more for water in a bottle than from the tap, so it stands to reason that it must be better.

However, instead of necessarily paying for superior water, we're paying for bottles, transportation and marketing, which might not be the kind of thing you value

On average we drink 33 litres of bottled water every year, and at an average cost of 48p per bottle, that's almost £16. You have to ask yourself if it's worth it.

Your expensive fashion headphones may look cool, but if you look around among the professionals, they won’t be wearing them.

The very best of the professional headphones cost the earth, so they're not a money-saving option. However, if you set a budget and check out the gadget magazines for their recommendations in your price range, not one of them recommends the fashion brands.

Instead of paying for branding, it's worth doing your research and paying for better sound.

We're loyal to brands for two reasons when it comes to medicines. The first is that they advertise, and they don’t mention the name of the active ingredient, so if we have a specific problem, all we know to ask for is the brand.

The second is a matter of trust, because we know the brand, and we can see it costs many times more than the generic versions of the same thing, so we trust that it is better.

In reality, the active ingredients are exactly the same, and if you don't know the generic drug that you can substitute for your expensive brand, you can simply ask your pharmacist - and look forward to spending a fraction of the amount your usual brand name medicines will set you back.

Pedigree pets are incredibly expensive. Even common breeds like springer spaniels will cost you several hundred pounds, while rarer breeds can set you back thousands.

It’s easy to assume you are paying for a well-bred pet, which will be free from medical problems. However, the breeding process means that pedigree pets tend to be prone to far more medical issues - which end up costing a fortune.

A mongrel dog or a moggy will often rack up far fewer vets bills, and there are usually an enormous number looking for new homes at the local rescue centre.

There’s an enormous advertising industry, pouring huge resources into convincing us that the more expensive beauty products are the best. In some cases this may be true, but it’s also worth keeping your eyes open for the cut-price beauty products recommended by the experts and winning awards.

A couple of examples stand out from recent coverage, including Boots Protect & Perfect for £23.95, which was so hotly tipped that it had a waiting list before its release in May last year. An even more affordable option is the £1.69 Bottle O’Butter moisturiser, which flew off the shelves thanks to an endorsement from the beauty press a while back.

Often in the mobile market, the more you pay, the more you get. So if you want a flash phone, all you can eat data, oodles of airtime and endless texts, you'll pay through the nose. The question you really need to ask yourself is whether you need all of this.

It’s worth checking your statements each month, and going back to look at them for the duration of your contract. Check your average use, then look at any extra you would have paid for the months when you went over this. In most cases, those who are paying for the very biggest mobile packages could save substantially by downshifting.


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