The annual increase in the British Retail Consortium (BRC) shop price index – a measure of goods price inflation – jumped by two percentage points to 2.2% in December. The BRC index is a narrower measure than the official consumer price index for goods but this increase bodes ill for the December CPI report to be released on 19 January.
The chart compares the BRC indices for food and non-food goods with roughly-comparable CPI definitions. BRC food inflation tracks the CPI measure reasonably closely and climbed from an annual 2.8% to 3.7% in December. This represents an unfavourable surprise since the increase cannot be explained by the VAT effect – most food items are not VAT-able.
The annual change in the BRC non-food index rose from -1.2% to 1.4% in December, largely reversing a 2.8 percentage point decline in December 2008 due to the VAT cut. The annual change in the CPI for "non-energy industrial goods" fell by 2.2 percentage points in December 2008; a similar reversal would imply a rise from 1.3% to more than 3% last month.
Overall CPI inflation, including services as well as goods prices, fell from an annual 4.1% to 3.1% in December 2008. Higher BRC food inflation, the jump in the non-food measure and an unfavourable petrol price base effect suggest a similar-sized increase in December 2009. The forecast in an earlier post of a rise in annual CPI inflation from 1.9% in November to 2.6-2.7% last month may prove conservative.