A series of UK shop price deflation reports has come to an end with the latest numbers from the British Retail Consortium/NielsenIQ, released on Tuesday, showing price inflation is back.
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Shop price inflation was 0.4% year on year in June after prices declined by 0.1% in May.
But the headline figure doesn’t tell the full story with the main culprit for rising prices being food. In fact food inflation was 3.7% year on year in June compared to 2.8% in May.
By contrast, non-food inflation stayed in a deflation trend with prices down 1.2% during the month. Admittedly this was a smaller decline than the 1.5% drop seen during May and also than the three month average of -1.4%.
The BRC blamed higher costs for retailers and said that the current inflation was no surprise after the government’s Autumn Budget last year with increases to employer National Insurance contributions and also to the National Living Wage.
The fact that prices of essentials were rising during the month but non-essentials continued to see lower prices, suggests that retailers in sectors such as fashion remain under pressure and are aiming to attract the interest of very-price-conscious consumers by keeping a lid on prices. But they will come a point where costs become harder to carry and prices of discretionary goods may have to rise, further stoking inflation.
“We predicted a significant rise in food inflation by the end of this year, and this has been accelerated by geopolitical tensions and impacts of climate change,” Helen Dickinson, CEO of the BRC, said. “Within three months of the costs imposed by last Autumn’s Budget kicking in, headline shop prices have returned to inflation for the first time in close to a year.”
Mike Watkins, head of Retailer and Business Insight at NielsenIQ, added: “Price increases are being driven by broader economic conditions and ongoing changes in the supply chain. While the current spell of good weather is helping to boost demand at many retailers, rising prices could become a concern if consumer willingness to spend declines later in the year. Which means we can expect retailers to reinforce their value-for-money messages over the summer.”
