British consumers were warned on Wednesday that they could expect significant increases in the prices of imported goods, further stretching already tight household finances.
The British Retail Consortium, in its latest shop price index report, said that non-food deflation had reached its lowest rate in more than four years thanks to retailers' hedging policies that have hitherto protected shoppers from increases in the price of imported items.
BRC warned, however, that these policies, in place since the British pound started tumbling in response to last June's referendum vote to leave the EU, were coming to an end as retailers "ran out of options" to protect shoppers from price increases.
Shop price index
BRC's headline shop price index fell by 0.3% year on year in August, creeping up from July's 0.4% annual deflation.
Annual non-food deflation at 1.3% was the primary factor in keeping the effects of rising food prices in check.
Total annual food inflation rose to 1.3%, with fresh food up 0.8% and ambient food - those food items that can be safely stored at room temperature – rose 1.9%.
Inflationary pressures increase
The BRC's Helen Dickinson warned that inflationary pressures were building, however, as currency hedging policies against the weakening pound since last year's EU referendum were ending.
This would likely mean that retailers would soon have to start passing on the price increases associated with importing goods in a weak currency exchange environment.
Indeed, the pound fell to its weakest level against the euro in eight years on Tuesday.
"The overall pressures on prices are still weighted upwards," said Dickinson. "That will put an increasing strain on already stretched family budgets."
News and books retailer WH Smith released a confident trading update ahead of its end of year results, due on October 12.
The FTSE 250-listed company said it had delivered a strong performance across all its business channels and that it expected results to be in line with expectations.
Shares in WH Smith climbed 0.4% to £18.56 on a FTSE 250 index that climbed 0.4% to 19,613.
The FTSE 100 index was 0.4% higher at 7,363 in mid-morning trade in London, with Sainsburys, the supermarket, among the best performing stocks, up 1.9%.