February 20, 2018

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BRC: Shop prices teetering on return to inflation

inflation
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  • In September, Shop Prices reached the shallowest deflation level in the last four years of 0.1%, with prices falling just 0.1% compared to a 0.3% year-on-year decline in August.
  • Non-Food price deflation accelerated to 1.5% in September, from 1.3% in August, although Non-Food prices are less deflationary than in September 2016, when they had fallen 2.1% year on year.
  • Food prices increased in September to 2.2%, up from 1.3% in August.
  • Fresh Food inflation gained a full percentage point in September, up to 1.8% from 0.8% in August.
  • Ambient Food inflation rose to 2.7% in September, a gain of 0.8 percentage points on August inflation of 1.9%.

Helen Dickinson OBE, chief executive, British Retail Consortium: “Overall shop price deflation reached an all-time low in September with prices now teetering on the edge of inflation.

“A number of factors have combined to drive a sharp jump in food price inflation to 2.2 per cent over the year to September. A global milk shortage has pushed up butter prices, while rising global cereal prices earlier in the year are now feeding onto shop shelves. At the same time we are starting to head out of the UK season for some vegetables and, as we flagged last month, that means enhanced exposure of food prices to the Sterling exchange rate.

“Meanwhile retailers’ efforts to shield shoppers from the impact of higher import prices of basic non-food items are holding out for now. However, as more non-food retailers’ hedging facilities come to an end this autumn, and as public policy costs mushroom, consumers are likely start feeling an additional pinch on these products.

“This more challenging outlook for consumers going forward is made more ominous by the recent uptick in producer price inflation – the first since February – which is adding further inflationary pressures on the horizon. Stretched family budgets will continue to feel the strain as increases in the price of the weekly shop add to overall rising inflation which continues to outpace wage growth.

“Consumers and businesses need the Government to reach prompt agreement with the EU on the terms of a Brexit transition, to ensure they aren’t faced with a cliff edge scenario that could mean tariff-related price increases on top of those they are already paying.”

Mike Watkins, head of retailer and business insight at Nielsen: “The uncertainty around the buoyancy of consumer spend has meant that non food retailers are keeping price increases to a minimum to help maintain sales growth, and whilst shoppers are seeing increases on their supermarket till receipt as the upward pressure on cost prices filter through, some of the shop price inflation is due to the end of seasonal price cuts in fresh foods. The good news is that inflation is expected to peak over the next few months and with consumers still uncertain about when and where to spend, we expect competition for discretionary spend to intensify as we head towards the end of the year with more promotional savings for shoppers across all channels.”

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