Figures published by the British Retail Consortium this week have shown a slowdown in overall shop price inflation down by 0.1 per cent to 2.8 per cent in July.
The BRC-Nielsen Shop Price Index (SPI) fall was largely thanks to a 5.2 per cent figure for food inflation for July compared to 5.7 per cent last month.
Non food inflation however remained static in July at 1.3 per cent.
The fall in food inflation was largely the result of some good crops for seasonal fresh fruit and vegetables which boosted supplies and therefore brought prices down. In addition cheaper animal feed allowed meat prices to fall too.
Despite the respite for cash-strapped households however Stephen Robertson, British Retail Consortium Director General, said ‘customers were altering their spending habits longer term whilst retailers are increasingly using promotional activity to stimulate demand.
"Customers have adapted their shopping habits to higher levels of inflation over the last few months. People are increasingly taking advantage of promotions to help mitigate against the full impact of inflation, so the effect of food inflation faced by consumers will be less than 5.2%. Thirty-nine per cent of all the groceries being bought in supermarkets are now on offer. High world commodity costs and import inflation resulting from rising prices in China are still the key factors behind shop price rises. Non-food inflation was virtually unchanged from June but is still remarkably low, especially since these figures include the effect of the VAT rise,” said Robertson.
Mike Watkins, Senior Manager, Retailer Services, Nielsen believes further cuts could come.
“Shoppers are still looking for savings to help pay for increases in other household bills such as transport and energy. Retailers have responded with a continuation of price cuts and promotions to stimulate demand at a time when many households are shopping differently to help manage household budgets. Looking ahead, we are optimistic that whilst prices will still be higher than last year, the rate of increase may start to slow later in the year.”
Overall shop price inflation continues to be driven by the effect of January’s rise in VAT, the impact of past rises in key commodities continuing to feed through to consumer prices and import inflation from the weakening of sterling and emerging market inflationary pressures.