UK: Shop price inflation turns negative for first time in more than three years

Heavy discounting and lower commodity prices saw shop price inflation turn negative during May, acco

Heavy discounting and lower commodity prices saw shop price inflation turn negative during May, according to the British Retail Consortium - Credit: PA

Shop prices fell by 0.1% last month, according to figures from the British Retail Consortium, representing the first overall deflation in the sector for more than three years.

Food price inflation slowed from 2.9% in April to 2.4%, its lowest level since June 2010, as stores sought to lure in cash-strapped shoppers with promotions and vouchers.

And prices of non-food goods remained in negative territory, falling by 1.5% compared with a 1.0% reduction in April as retailers discounted heavily across clothing, footwear, electricals, furniture and carpets.

The overall fall last month, the first recorded by the survey since September 2009, compared with a 0.4% rise in April.

The BRC said alling prices of commodities such as wheat and corn had fed through to meat prices and helped hold back rises in grocery costs.

Non-food retailers had also relied on promotions to shift stock and capitalise on improving consumer confidence and warmer weather, it added.

BRC director general Helen Dickinson said: “Times remain tough, but it seems that retailers are reading the market well and doing what they can to offer customers the best possible value on their shopping.”

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Slowing price rises at the tills follow reports of rising sales in May.

The BRC said earlier this week that offers and discounts helped like-for-like retail sales rise 1.8% in May year-on-year.

Its weaker inflation data also reflects official figures from the Office for National Statistics, which showed Consumer Prices Index (CPI) inflation fell to 2.4% in April, down from 2.8% in March and a sharper fall than economists had expected.

Mike Watkins, head of retailer and business insight at Nielsen, which carries out the survey for the BRC, said: “With levels of recent consumer spend also being impacted by the weather, there continues to be a dependency by many retailers to use vouchers or coupons to drive footfall.

“Nevertheless, with food inflation slowing as we finally start summer, the outlook for the next three months is looking much brighter.”

Shoppers were battling food price inflation of 4.3% a year earlier, but wheat prices have now fallen 26% since last July’s five-year high. Forecasts of good grain harvests are expected to further ease prices in coming months.

Price rises for fresh food slowed to 2.7% in May from 3.1% in April. Inflation among ambient goods was down to 1.9% in May - almost a six-year low.

Clothing and footwear saw the sharpest price falls, down 5.7% on a year earlier, as the slow start to the spring season forced retailers to rely on discounts and promotions.

Prices of electrical goods also fell 5.2% in May on a year earlier, while furniture and food coverings saw deflation of 1.8%.

Weaker inflation will give the Bank of England more scope to pump money into the economy to stimulate sluggish growth.

The bank has held its quantitative easing drive at £375billion amid fears over pushing up inflation, but is widely expected to top up asset purchases in coming months, possibly after the arrival of new governor Mark Carney in July.