Shop prices back to deflationary levels

After two months of mild inflation, store prices have fallen again as global food prices fell and weak consumer demand forced retailers to face tougher competition.

According to the BRC-Nielsen Shop Price Index, prices fell 0.2 percent in October compared to the same period last year, while they rose 0.2 percent in September.

Inflation in the food sector slowed from 1.9 percent in September and August to 1.3 percent in October, while deflation in the non-food sector worsened to 1.1 percent from 0.9 percent in September.

The figures reflect a cooling in global food prices, particularly meat and dairy products. Vegetable prices are also falling, although the extreme heat of the summer continues to push up the cost of some domestically grown products.

The British Retail Consortium (BRC) said increasing deflation in non-food items was a result of weak consumer demand, forcing retailers to keep prices low or even fall.

BRC chief executive Helen Dickinson said: “As the Christmas season approaches, retailers are facing fierce competition, driving down the prices of many goods, including clothing and electrical goods.

“This comes at a particularly difficult time as lower consumer demand, a weak pound and rising political costs put pressure on retail margins.

“The Finance Minister’s draft budget on Monday did not go far enough to ease the unsustainable pressures on businesses large and small. With many household names disappearing from the high streets, it is clear that the burden of business rates is simply too high and this unsustainable system needs urgent reform to enable the successful transformation of our high streets into modern and diverse places where people want to spend more time.”

Mike Watkins, head of retail and business insights at Nielsen, said: “Consumers are still unsure when and where to spend their money, and with the holiday sales now starting, competition for market share in both food and non-food retail will intensify.”

“And after a slow start to the quarter and with the consumer price index continuing to be above the Bank of England’s target, we can expect retailers to offer some additional incentives to encourage shoppers to spend.”