Deflation in food prices is at record pace

4th February 2015

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Deflation in food prices is at its fastest pace on record, the latest figures from retailers have revealed.

Overall shop prices showed deflation for the 21st consecutive month, decelerating to 1.3% in January, after reporting deflation of 1.7% in December, according to the British Retail Consortium and Nielsen’s Shop Price Index for January.

Food prices saw annual deflation of 0.5% in January after reporting inflation of 0.1% in December.

On a 12 month average basis, the Shop Price Index reported deflation of 1.6%.

Non-food deflation slowed to 1.8% in January from 2.8% in December.

BRC director general, Helen Dickinson, said: “For twenty-one consecutive months prices in Britain’s shops have fallen, this month by -1.3 per cent. It’s the second time in three months that we’ve seen food prices fall, accelerating to their lowest levels on record”.

“Clearly customers were taking advantage of the January sales with good bargains for furniture, flooring and electricals resulting in plenty of stock shifting. ”

Dickinson said there is some evidence that the heavy discounting in early December resulted in some retailers pulling their new season stock forward, which meant a significant amount of goods were sold at full price in January.

She added: “The halving of the oil price since the summer has helped the retail supply chains with the impact of these falls, continuing to make their way through to shop prices.

“With the outlook for inflation low, the jobs market robust and rising real incomes gathering pace, the outlook for consumer spending looks positive. Deflation doesn’t always translate into bad news for retailers. The Producers Price Index (which tracks the cost of raw materials to producers) remains deflationary, so retail businesses will continue to see decreases in their own input costs for the foreseeable future. To remain competitive, retailers will continue passing these savings on to the consumer.

“2015 is shaping up to be win-win year for shoppers and retailers alike.”

Mike Watkins, head of retailer and business insight at Nielsen, said: “Over the last six months we have seen food inflation falling and as we start 2015, we now have food deflation.

“Whilst falling prices are of course welcomed by shoppers, the impact is that there is only marginal value sales growth across the industry.

“With further price cutting expected by the major Supermarkets the near term outlook is for the continuation of a low growth trading environment.

“Deflation also continues in clothing and electrical with non-food retailers still able to pass on the benefit of falling supply chain costs to the consumer.”

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