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Weak consumer spending and fierce competition forces prices down: BRC

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Groceries are a big contributor to falling prices
Groceries are a big contributor to falling prices
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Weak spending and competition in the face of Brexit uncertainty force prices down by record levels in August, BRC finds

August is a tricky month for retailers, but this August has been particularly tricky. August Shop Prices fell by 0.4% compared to a 0.1% decrease in July. This is below the 12- and 6-month average price increases, both of 0.3%, and is the fastest rate of decline since June 2018, according to the monthly BRC retail price index.

 

Non-Food prices fell by 1.5% in August compared to July’s decrease of 1.2%. This is below the 12- and 6-month average price declines of 0.6 and 0.7%, respectively. It is the fastest rate of decline since June 2018.

Food inflation eased slightly to 1.6% in August from 1.7% in July. This is below the 12- and 6-month average price increases of 1.8% and 1.9%, respectively. However, fresh food inflation accelerated in August to 1.4% from 1.2% in July. This is below the 12- and 6-month average price increases of 1.4% and 1.5%, respectively. Ambient Food inflation slowed significantly to 1.8% in August from 2.4% in July. This is below the 12- and 6-month average price increases of 2.3% and 2.6%, respectively.

 

Overall prices were pushed further into deflationary territory by Non-Food goods that saw prices decline at a faster pace in August. Out of the seven Non-Food categories, three were deflationary. Weak consumer spend and intense competition kept price increases well at bay, with many retailers using discounts, especially for basic items (which are oversampled in our index). Case in point, prices for five categories – DIY, Furniture, Clothing, Electricals and Other Non-Food, are below their August 2015 prices.

Inflationary pressures are receding for some Food categories too. Promotional activity by supermarkets slowed down the rate of price increases for Non-Alcoholic Beverages, Sugar & Confectionary and Bread & Cereals. Meanwhile prices of some Fresh goods declined in response to market developments. For instance, meat prices have been falling for a fourth consecutive month in August, as declines in global meat prices late last year have been feeding through into final consumer prices.

 

Helen Dickinson OBE, Chief Executive, British Retail Consortium, comments: “Consumers were the real winners this month as prices fell at their fastest rate in over a year. Prices of non-food goods fell at a faster rate than both the previous month and the 12-month average, while food inflation eased slightly due to higher levels of discounting from supermarkets. Weak consumer spending and stiff competition has kept prices down in the UK, however a disruptive no-deal Brexit, which would raise the cost of imported goods, could reverse this trend. In the interests of both consumers and retailers, the Government must redouble its efforts to find a workable agreement with the EU that would avoid a no deal scenario.”

 

Mike Watkins, Head of Retailer and Business Insight, Nielsen, adds: “August is often a difficult month for retailers made more challenging this year by unseasonable weather early in the month, and we have seen the return of vouchering by many supermarkets and some non-food retailers bringing forward end of season discounts to help drive sales. Consumers remain uncertain about when and where to spend but the good news is that any inflationary cost pressures that may be building in the food supply chain, have not yet reached shop prices.”

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