No End Sign In Sight For Falling Shop Prices With Food Back Into Deflationary Territory

The latest BRC-Nielsen Shop Price Index shows that overall shop prices fell 1.8% in May from a 1.7% decline in April.

Non-food deflation in May slowed to 2.7% from 2.9% in April. However, food prices moved back into deflationary territory, down 0.3%, compared to a 0.1% rise the previous month. Fresh food deflation accelerated to 0.8% from 0.5% in April, whilst ambient food inflation fell back to 0.4% in May after accelerating sharply in April to 1%.

Helen Dickinson, chief executive of British Retail Consortium, commented: “The fact that today’s figures remain deflationary doesn’t come as a great surprise. We’ve experienced a record run of falling shop prices and, for the time being, there’s little to suggest that’ll end any time soon – so the good news for consumers continues. Indeed, with food prices remaining flat at the same time as wages continue to grow means customers will have yet more money in their pockets at the end of their weekly shop.

“Looking slightly longer term we know that the recent commodity price increases will start to put pressure on retailers to raise their own prices. We would normally expect these input costs to filter through to prices eventually, but the big question is how far fierce competition in the industry will insulate consumers from price increases. If retailers do continue to absorb these costs it’ll be more important than ever that other external costs, business rates chief among them, are brought under control.”

Mike Watkins, head of retailer and business insight at Nielsen, added: “Shop price inflation remains below consumer price inflation and falling food prices are still being driven lower by global commodity prices as well as intense competition, which shows no sign of relenting any time soon. Non-food prices also continue to fall, and with shoppers indicating that they are becoming more cautious about spending, retailers will have to keep prices the same or probably even lower over the next six months.”

NAM Implications:
  • In other words, flat-line continues for six months, minimum…
  • Think about it, with the Brexit vote but 23 days away, the attendant uncertainties will cause consumers to cut spending, and afterwards, whatever the result, politicians will be able to use the referendum to ‘explain’ the lack of real economic growth, ‘for as long as it takes…’
  • As a purely ‘academic exercise’, why not try a 5-year flat-line what-if on your corporate strategies?