Shop Prices Continue To Fall But At Slower Rate

Data from the latest BRC-Nielsen Shop Price Index showed the cost of consumer goods continued to fall in July with a 1.6% decline.  However, the figure was less than June’s fall of 2% and the slowest rate since August last year, suggesting that price pressures may be building following the Brexit vote and subsequent fall in the value of Sterling.

Non-food deflation decelerated to 2.2% in July from 2.8% in June, whilst food deflation remained at 0.8% for the second consecutive month.  Both the fresh and ambient food categories saw prices fall in the period.

The BRC said the figures meant that shoppers had now seen 39 consecutive months of falling prices, driven down by intense competition between retailers.  However, Helen Dickinson, Chief Executive of the BRC, hinted that things could change in the months ahead.  She said: “While we may have become accustomed to prices falling, it’s worth noting that this month’s figures have seen the rate of deflation decelerate.

“It’s too early to say if this is the beginning of the end of sustained price deflation or whether pressures in the wider economy could merely mark the end of the beginning.”

Meanwhile, Nielsen’s head of retail insight Mike Watkins suggested that the tough trading conditions will remain for the foreseeable future.  He said: “With unpredictable weather and a change to consumer sentiment underway, we have seen retailers cut prices or increase promotional activity in the last few weeks to help top line sales growth, so it`s of no surprise that shop price deflation is lower in July than in any other month this year.

“Once again it is clear there is currently no inflationary pressure coming from retail and discounting looks set to be a catalyst to stimulate demand in the coming months.”

NAM Implications:
  • Another factor to bear in mind is the probability that falling prices kept consumer spending power in check (i.e. lower prices compensated for falls in real wages and  disposable income)
  • Meaning that any rise (justified or not) could cause consumers to reduce spending…