The latest findings from the BRC-Nielsen Shop Price Index indicate that over four years of shop price deflation may be coming to an end.
For a third consecutive month, shop prices decreased at an annual rate of 0.1% in November – the shallowest deflation rate in the last four years.
Non-food price deflation eased to 1.1% from 1.5% in October. This is the lowest deflation since May 2013.
Helen Dickinson OBE, chief executive, BRC, says: “For the third consecutive month shop price inflation remained static, still teetering on the edge of a return to inflationary territory. November now marks the 55th consecutive month of deflation with the current rate the shallowest in the last four years.
“Meanwhile the forces driving inflation continue to play out differently across the industry. While food inflation has fallen back in line with global prices, non-food deflation is as low as its been for more than three years, as hedging contracts come to an end and with them, retailers’ ability to shield their customers from the currency depreciation.
“The lower projections for consumer spending, that came from the OBR’s downbeat forecast, and uplifts in labour costs, conjure up a perfect storm of economic pressures looming over an industry that’s already fiercely competitive. That’s why we were pleased that the Chancellor listened to us and others and brought forward the switch from RPI to CPI indexation on business rates – not the fundamental reform needed but an important step forward which will undoubtedly ease some of the pressure and enable retailers to continue with some investment which would otherwise have been threatened.
“However, against a backdrop of higher import costs and a tightening squeeze on discretionary spending power, the challenges to the industry remain stark. So we will continue to press the Government to put business taxation on a more affordable and sustainable footing and to enable the industry to invest in the digital skills that are needed today and in the future.”
Mike Watkins, head of retailer and business insight at Nielsen, adds: “Shop price inflation has been increasing in line with the CPI for the last six months, but the index still tracks below that of the UK inflation as a whole, and the peaking of food inflation is a welcome boost to shoppers with Christmas shopping under way. Many inflationary increases are still being absorbed by retailers and are not being passed on to the consumer in the form of higher prices. Nevertheless, the deflation in non-food continues to overshadow the discounting and promotional activity taking place in this channel as consumers become more cautious and look for ways to save on their household bills."