Competition for customers drives deflation

Overall shop prices reported deflation of 1.8 per cent in September from the 2.0 per cent decline in August, with non-food deflation decelerating to 2.1 per cent in September from 2.5 per cent in August.

Deflation in the DIY, Gardening and Hardware category slowed to 1.8 per cent from the 2.4 per cent decline in August.
This is the lowest deflation rate since January 2015 and significantly below the three-month average of -2.3 per cent. Both the Tools and Equipment for the House and Garden and Household Utensils categories reported a further deceleration in their deflation rates.
Over the last two years, the overall category has reported deflation of two per cent or more in 19 out of 24 months. With comparisons with deep levels of deflation a year ago or the remainder of the year, we expect to see this category move closer to zero over the coming months. On a month-on-month basis, prices fell 0.1 per cent from the 0.4 per cent fall in August.
Food deflation accelerated to a new record low, falling 1.3 per cent in September from 1.1 per cent in August.

BRC chief executive Helen Dickinson said: "There’s been little change in the ongoing trend of price movements this month with shoppers finding their purchases 1.8 per cent cheaper than at the same time last year, only marginally different from the two per cent in August. The slight slowdown in deflation has been driven largely by non-food where shop prices fell by 2.5 per cent in August compared to a fall of 2.1 per cent in September. Food prices fell by 1.3 per cent. As well as being the highest year-on-year fall we have ever recorded in food, it is only the second time since our Shop Price Index began that food prices have fallen by more than one per cent.

"We are now in the fourth year of falling shop prices, so the record setting run of shop price deflation continues, which is great news for consumers. This is as a direct result of the intense competition and transformational change in the retail industry with consumers having access to more choices and greater ability to compare prices than ever before."

Nielsen retailer and business insight head Mike Watkins said: "With a new round price cuts by supermarkets in September and fresh foods also promoted to encourage visits, this has helped maintain deflation in shop prices. However, the warm and late summer weather was a challenge for many in the non-food channel so we may well see further price discounts as we move into October."

The background the figures was that sterling fell to a near 30-year low at the start of this week after the Prime Minister announced that Article 50 would be invoked before March 2017.

The trade weighted index for sterling is currently 11 per cent lower than it was on June 23 and is yet to impact fully on input prices.

The Producer Price Index reported a 7.6 per cent rise in the cost of goods bought by UK manufacturers (input prices).

The price of oil hit $50 per barrel (PB) at the start of October driven by news of a cap on output by some of OPECs largest producers.

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