Food Prices Up Just 0.4% As Supermarkets Shield Shoppers From Cost Increases

Despite recent well-publicised moves by a number of major brands to push through cost price increases to offset the impact of the fall in the value of sterling, latest industry data suggests that intense competition between supermarkets is shielding shoppers from significant price rises at the checkout.

Figures from BRC-Nielsen Shop Price Index show that food inflation was just 0.4% in February. However, this was still a sharp acceleration from the 0.8% fall in January and the first inflationary rise since April last year.

The data showed that fresh food prices rose 0.1% compared to a 1.2% fall in each of the previous three months. Meanwhile, ambient food reported annual inflation for the second time in three months, rising 0.8% in February from the 0.2% decline in January.

Overall shop prices were down 1% in February, continuing a trend of year-on-year falls that has lasted nearly four years. However, the figure was a sharp deceleration from the 1.7% fall in January, impacted in part by non-food deflation which decelerated to 1.8% in February, compared to a 2.3% decline January when retailers discounted goods after a Christmas.

Helen Dickinson, Chief Executive of the British Retail Consortium said that the significant underlying cost pressures, which have been building over the last year, are beginning to filter through into shop prices. She added: “Global food prices were on average 16% higher at the beginning of this year compared to last, whilst over the same period the value of the pound fell around 15%. Despite this, February saw an increase of just 0.4% in the prices of food sold in shops; proving retailers’ resilience in managing to largely shield consumers from cost increases.

“Looking further ahead, retailers, who operate in a highly competitive market with narrow margins, will be increasingly hard pushed to protect their customers from the inevitable impact of these rising cost pressures. We can therefore expect this impact to start manifesting in shop prices over the course of the year.”

Meanwhile, Mike Watkins, Head Of Retailer And Business Insight at Nielsen, commented: “Whilst food inflation has returned, the competition between retailers means that price increases passed onto consumers in February were relatively small, and there were also some seasonal and weather related increases. Non-food prices remain deflationary and in part this reflects the structural change underway in non-food retailing. At the moment consumer sentiment around spending intentions is strong so we don’t anticipate any significant change on retail spend over the next few months even if shop price inflation gains more momentum.”

NAM Implications:
  • Bearing in mind that this increase is an average across all UK retail, it means that any of your price increases in excess of this will stand out, especially if your competitors have not managed to secure equivalent increases.
  • …meaning that your brand may need extra help in justifying the price-difference to consumers…