“Lies, damned lies and retailers’ Christmas trading statements.” As a retail analyst I always hated January and its seemingly never ending stream of sales updates.

Not just because it meant extra work but because, rather like icebergs, they invariably hid more than they revealed.

In particular, the period covered by each statement - for instance Tesco’s six weeks to January 8 and Morrisons’ six weeks to January 2 - differs at a time when trading patterns are so volatile that even a day can make a significant difference to the underlying trend.

Yet the numbers were all compared as if they were genuinely like-for-like. This year there has been an even bigger distortion of reality courtesy of the reappearance of inflation in retailers’ selling prices which, for many non-food retailers, is a novel experience.

Thus, many retailers were able to report sales increases and to use that much abused phrase ‘record’ sales, when the underlying reality was a decline in sales volumes.

This will be a recurring theme in 2011 as consumers’ incomes are increasingly squeezed. In essence it will be the reason that reported retail sales continue to rise and retailers’ profits will also pleasantly surprise many observers.

Retailers should learn to love inflation - it cushions profits and provides an illusion of growth. Yet most talk about inflation in negative terms, dwelling on the impact of raw material, energy and transport price increases.

The danger is not inflation itself but differential inflation. Rather like Mr Micawber’s equation, if inflation in selling prices is higher than inflation in costs the result is happiness but if inflation in selling prices is lower than inflation in costs the result is misery.

In general, retail profits will surprise on the upside in 2011/12 despite the very tough consumer environment but, as seen over Christmas, the gap between the good and the bad will become ever greater.

The strong retailers that can squeeze suppliers and pass on price increases will enjoy significant growth while the weaker players who, for reasons of competitive pressures or brand weakness, cannot pass on or make price increases stick will struggle and there will be casualties.

The classic example of this was the DIY retailers in the early 1990s recession, when inflation provided healthy double-digit sales increases despite the desperate housing market and negative volumes.

The leading players, B&Q and Texas, performed surprisingly well while the weaker players, Do It All and Focus, struggled to survive.

Inflation gets a bad press, in particular because of the dishonesty of our politicians. Both here and in the US there is a hidden agenda - print money and keep interest rates near to zero and encourage inflation since this is the one sure way to reduce government deficits painlessly.

Do the maths: inflation of 5% per annum for a little over eight years will halve the deficit in real terms without recourse to harsh unpopular cuts.

John Richards retail consultant