Cost prices will grow between 5% and 8% over the course of next year, the KMPG/Ipsos Retail Think Tank (RTT) has predicted.
The think tank said the rise in cost prices would be accompanied by a stagnation of retail growth owing to the political uncertainty caused by Brexit and the inauguration of President-elect Donald Trump.
It estimates that retailers will pass on price rises of between 2.5% and 3% to consumers, choosing to absorb the rest themselves, or push costs on to their supply bases.
Overall, RTT believes that any growth from non-discretionary spending will be offset by a decline in discretionary spending, resulting in overall growth of 0.5% across 2017.
RTT co-chairman and KPMG 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.”
Maureen Hinton, RTT member Verdict Retail, added: “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 the second quarter of 2017 and all retailers struggling with cost inflation and squeezed margins will be forced into passing on price rises to the consumer.”