Retailers raise inflation worries for 2022

Three leading British retailers on Thursday underscored the threat they face from inflation this year, with their bosses fretting over the need to remain competitive as surging prices threaten customer spending power.

Next, Britain’s most profitable clothing retailer, said it expected higher freight and manufacturing costs to push its prices up by 6 per cent in the second half of 2022, raising doubts as to whether customers’ wages would be able to keep up.

The Bank of England expects overall consumer price inflation to hit that figure in April, its highest since 1992, before easing off.

Next boss Simon Wolfson told Reuters the gap between general wages and its prices would largely determine the company’s fortunes in 2022.

“The positive for retail is that we can adjust our pricing,” he said. “So if wage inflation is in line with our price increases – I don’t think it will be, but if it is – then it’s not going to be nearly as much of a problem as if wage inflation is a long way behind.”

Food-to-go retailer Greggs said its costs were driven by government-mandated hikes to the minimum wage, and the rise in prices of ingredients. With order contracts in place, it has visibility for the next four to six months.

“This year is a more challenging year than most because you’ve got inflation coming at you from both the ingredient side and from the labour side,” outgoing CEO Roger Whiteside told Reuters.

He said that while Greggs had, and would try, to push through small price rises, the group had to be cheaper than rivals.

B&M, a discount retailer that has performed strongly during the pandemic, upgraded its profit forecast on Thursday. But it tempered its upbeat tone with an acknowledgement that 2022 would bring further supply chain disruption, inflationary pressures and uncertainty from Covid-19.

Rising inflation is the major cloud on the horizon for the global economy, as supply chain disruption, higher energy costs, labour shortages and a post-lockdown revival in demand for goods pushes up prices at rates not seen for decades.

That will all place additional pressure on consumer spending after years of stagnant wage growth in real terms. In April, British consumers will face a rise in taxes and energy bills.

They are also facing higher food prices. Grocery price inflation reached 3.5 per cent in December, its highest since spring 2020, adding nearly £15 to shoppers’ average monthly grocery bills, according to industry data published on Wednesday.