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Shop prices return to deflation in June, says BRC

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Shop Prices turned deflationary for the first time since October 2018 in June, according to the latest British Retail Consortium-Nielsen shop price index.

Last month, Shop prices fell by 0.1%, compared to May when prices increased by 0.8%. This is below the 12- and 6-month average price increases of 0.3% and 0.5%, respectively.

Non-Food prices were back in deflationary territory in June, recording a decrease of 1.2% from the 0.2% increase in May. This is below the 12- and 6-month average price decline of 0.6 and 0.3%, respectively. Food inflation was steady at 1.8% in June. This is in line with the 12-month average price increase, and slightly below the 6-month average price increase of 1.9%.

Fresh Food inflation eased in June to 1.4% from 1.5% in May. This is in line with the 12-month average price increase, but below the 6-month average price increase of 1.5%. Ambient Food inflation accelerated to 2.3% in June up from 2.1% in May. This is in line with the 12-month average price increase, but below the 6-month average price increase of 2.4%. 

With Food inflation steady, June’s headline inflation figure was driven by the sharp decline in Non-Food prices. Out of the seven Non-Food index categories, inflation eased for four of them and the remaining three were deflationary. 

Shoppers’ finances have been under significant strains. Real income grew by just 1.1% over the year to April 2019, whereas there was negative real wage growth in six of the last nine years. Consequently, non-food retailers catering to discretionary demands have been bearing the brunt. In June, prices of Clothing & Footwear, Furniture, Electricals, DIY, and Other Non-Food were all below the level of June 2015 prices. While technological changes have resulted in the long-term price decline seen in Electricals and Clothing & Footwear, weak consumer spend put significant downward pressure on prices for the other categories.

Helen Dickinson OBE, Chief Executive, British Retail Consortium says: “Shop prices fell for the first time since October 2018. While the overall fall in prices was small, and food inflation remains steady, it nonetheless represents a welcome break for consumers after several months of inflation. It is also a sign of the fierce competition between retailers, which has long kept prices low for British consumers.”

She continues: “However, a no deal Brexit would hinder retailers’ abilities to continue to contain prices, as checks and delays would raise the cost of doing business. The October 31st deadline also comes at the worst possible time for retail – the height of preparations for Christmas and Black Friday, which are peak trading periods, threatening to cause disruption for consumers and businesses, and making further stockpiling of goods almost impossible. It is vital that the next Prime Minister reaches a deal with the EU and avoids the cliff edge.”

Mike Watkins, Head of Retailer and Business Insight, Nielsen adds: “Food inflation is broadly stable, and this looks set to continue over the summer with many supermarkets reducing prices, helping to offset some of the cost increases coming through the supply chain. This is helping shoppers make further savings on household bills as well as providing a much-needed boost to sales. On the non-food high street, retailers are maintaining the level and depth of price cuts, to help drive footfall following dampened demand due to the weather and wavering retail spending.”

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