Inflation in UK retail stores accelerated in August, reaching its highest level in two years as rising energy costs and increased demand for artificial intelligence (AI) components contributed to price pressures across several sectors. According to data from NIQ compiled for the British Retail Consortium (BRC), in-store prices rose 1.5% year on year last month, up from a 0.9% increase in July.

Food prices were a significant factor behind the inflation uptick, with tinned and packaged goods experiencing a 2.5% increase compared to 1.1% the previous month. Fresh produce inflation remained elevated at 3%, though it slightly eased from 3.1% in July. The sustained rise in fresh food prices was attributed to adverse weather conditions earlier in the summer, including a hot, dry period, alongside ongoing high fuel and energy expenses.

BRC Chief Executive Helen Dickinson noted that higher energy, commodity, and other input costs are being passed on to consumers, particularly affecting ambient foods that are often imported and require processing. These cost pressures have made it challenging for retailers to keep prices stable.

In the non-food sector, prices for electrical goods rose, driven in part by the AI boom, which has increased demand for memory chips and storage components. Conversely, clothing prices remained relatively low as retailers sought to attract budget-conscious families preparing for the new school year.

Mike Watkins, head of retailer insight at NIQ, predicted that retailers will face intensified price competition moving forward, especially as consumers grapple with higher household energy bills. Dickinson cautioned that retailers are contending with elevated operating costs, limiting their capacity to absorb price rises without passing them on to shoppers.

She urged government intervention to address business rates, packaging charges, and employment taxes as a means to support retail sector growth and help manage living costs for consumers.