`Inflation to rise` if retail spending continues

24 June 2008

A continued increase in retail sales may influence a growth in inflation, an economy expert commented this week.

Capital Economics said if consumers continue to spend as they did in May, retailers may push up prices to pass on increased costs to customers. Such a rise could potentially cause debt problems.

Vicky Redwood, economist for the research consultancy, said "a much sharper pick up in inflation then the one we are already looking at" may result from high consumer spending this month.

"We are already looking at inflation rising to four and half percent - we`d be looking at it rising more sharply than that," she added.

From March to May inclusive, sales volume rose by 1.8 per cent according to the Office for National Statistics (ONS). Total volume sales rose 3.5 per cent between April and May.

The British Retail Consortium (BRC) also recorded a "superficial sales burst" of a 1.9 per cent increase in sales from last May, possibly due to the warm weather.

However, Ms Redwood said she expects to see a decline in sales this month. "If that were not to happen then that ... would be a bit worrying from an inflation point of view," she commented.

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