Clothing and footwear prices could rise by up to 4.7% in the last quarter of 2010, according to retail consultancy Verdict. It would be the highest increase since 1991.
The research firm said Britain is facing an expensive Christmas thanks to the sharp rise in commodity costs and an increase in prices ahead of the VAT rise in January.
Cotton prices have risen by 60% since June, reaching a record high, and high street retailers have sounded alarm bells about swallowing the costs. Earlier this month Next admitted that it would increase prices by 8% next year in a bid to protect profits.
Meanwhile, after levelling off over 2010, food prices are also expect to rise again, reflecting a 65% rise in wheat prices. Verdict predicts that food prices will increase by 2.2% in the final quarter.
Promotions are expected to mitigate the rises, particularly on food.
Verdict forecasts that the price increases will drive the best festive season for value sales since 2007, with sales in the final quarter expected to rise 1.9% to reach £85.2bn compared to the same period last year. However, volume sales are expected to fall back with clothing and footwear volume predicted to fall by 0.4%.