UK – Over Five Years of Shop Price Deflation Comes to an End

The BRC (British Retail Consortium) reports today that more than five years of shop price deflation comes to end and prices entered inflationary territory.

In August, shop prices in the UK increased by 0.1%, up from the July decrease of 0.3%. This broke a deflation cycle of 63 months.

  • Non-food deflation continued to ease in August to 1.0% from 1.4% in July. This is the lowest rate of deflation since April 2013.
  • Food inflation accelerated to 1.9% in August from July’s rate of 1.6%.
  • Fresh Food inflation picked up in August when prices increased by 1.5%, up from 1.2% in July.
  • Ambient Food inflation accelerated to 2.5% in August from 2.2% in July.
  • Both higher food price inflation and lower non-food price deflation contributed to the return of Shop Prices to inflation, after deflation last month. However, Shop Price inflation remains well below headline Consumer Price Inflation, the result of high levels of competition in the industry.
  • Higher food inflation is the result of both the spell of hot, dry, weather this summer, which reduced yields of some foods produced in the UK, and the increases in the prices of oil and agricultural products on global markets earlier in the year.
  • Lower Non-Food price deflation has been driven by a shift by a number of retailers in their approach to promotional activity, while strong demand for Summer products earlier in the season has reduced the need for discounting on these lines. However, this does not apply to all categories: Clothing remains the category showing the deepest deflation and is little changed from last month.

“Despite significant increases in costs in the supply chain, this month’s figures show that retailers are keeping price increases faced by consumers to a minimum.

However, current inflationary pressures pale in comparison to potential increases in costs retailers will face in the event the we leave the EU without a deal. If that does happen retailers will not be able to shield consumers from price increases.

“The EU and UK negotiating teams must deliver a Withdrawal Agreement in the coming weeks to avoid the severe consequences that would result from such a cliff edge scenario next March.”

Helen Dickinson OBE, Chief Executive, British Retail Consortium

Impact on eCommerce

The report did not mention eCommerce, but one could assume if this trend continues, online retailers in the UK may be able to push up prices a little to make up for rising shipping and supply chain costs.

The recent uncertainty of BREXIT has kept high-street and online retailers from raising prices in fear of losing sales. However, it looks like high-street is trying to make up a little for the increases and eCommerce may be able to follow.

READ MORE: Lack of Real Progress of Brexit Worries UK SMEs

If you are in the UK, have you been able to adjust your price points to make up for the rise in your costs? Head over to our Facebook Discussion Group or use the comments section below.

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