Food Deflation Accelerates To A Record Low But Prices Likely To Rise In Wake Of Brexit Vote

Latest figures from the BRC – Nielsen Shop Price Index show that the cost of food fell by a record amount last month as the supermarkets stepped up their efforts to attract customers over the summer.

Food deflation accelerated to 1.1% in August from 0.8% in the previous two months, although the BRC warned that the weakened pound following the Brexit vote is likely to push up grocery prices in the months ahead. Meanwhile, non-food deflation accelerated to 2.5% in August from 2.2% in July.

Overall, shop price deflation was 2.0% in August, from the 1.6% decline in July.

Helen Dickinson, Chief Executive of British Retail Consortium, commented: “Lower prices this August compared to last were driven by a combination of continuing promotional activity, softening oil prices and a global supply glut of wheat weighing on food prices.”

She added: “The devaluation of sterling in wake of the referendum will put upward pressure on shop prices. But that’s likely to take several months to properly feed through, given that retailers won’t feel the brunt of the cost increases until existing contracts with foreign suppliers come to an end. Even then, retailers will have to make a decision about when and how much to pass onto consumers. Given the strength of competition in the market, and if the economy softens in line with predictions, any pass through may be more limited than implied by the exchange rate movement. As far as they can, retailers will endeavour to mitigate impacts by looking for productivity gains in their own businesses, rather than compromising on the value they are offering to consumers.”

Mike Watkins, Head of Retailer and Business Insight at Nielsen, said: “Lower prices than a year ago across most channels with further price cuts by supermarkets has been good news for shoppers and helped to keep consumer spend buoyant over the summer. Competition for discretionary spend is likely to intensify as we head towards the end of the year, so retailers will be keen to keep prices low and promotions sharp.”