Non-food deflation accelerated to 2.5 per cent in August from 2.2 per cent in July. Food deflation accelerated to a record low, falling 1.1 per cent in August from 0.8 per cent in the previous two months.
Overall shop prices reported deflation of 2.0 per cent in August, from the 1.6 per cent decline in July. Non-food deflation accelerated to 2.5 per cent in August from 2.2 per cent in July. Food deflation accelerated to a record low, falling 1.1 per cent in August from 0.8 per cent in the previous two months.
Deflation in the DIY, Gardening and Hardware category slowed to 2.4 per cent from the 2.6 per cent fall in July. This is the deeper than 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 deceleration in their deflation rates. Promotional activity continues to be a key driver of sales in this category as periods of good weather entice consumers to improve their homes, says BRC. On a month-on-month basis, prices fell 0.4 per cent from the 0.5 per cent decline in July.
BRC chief executive Helen Dickinson said: "Shop prices continued their record run in deflationary territory. Lower prices this August compared to last were driven by a combination of continuing promotional activity, softening oil prices and a global supply glut of wheat weighing on food prices.
"The devaluation of sterling in wake of the referendum will put upward pressure on shop prices. But that’s likely to take several months to properly feed through, given that retailers won’t feel the brunt of the cost increases until existing contracts with foreign suppliers come to an end. Even then, retailers will have to make a decision about when and how much to pass onto consumers. Given the strength of competition in the market, and if the economy softens in line with predictions, any pass through may be more limited than implied by the exchange rate movement. As far as they can, retailers will endeavour to mitigate impacts by looking for productivity gains in their own businesses, rather than compromising on the value they are offering to consumers."
Nielsen retailer and business insight head Mike Watkins said: "Lower prices than a year ago across most channels with further price cuts by Supermarkets has been good news for shoppers and helped to keep consumer spend buoyant over the summer. Competition for discretionary spend is likely to intensify as we head towards the end of the year, so retailers will be keen to keep prices low and promotions sharp."
The biggest monthly increases in imported inputs were seen in Machinery & Equipment, Electricals and Computing Equipment, particularly those imported from outside the EU. Movements in the price of imports of food continue to be dominated by the dynamics of global supply and demand.
BRC says retailers will only feel the full force of input price rises once they reach the end of existing contracts with foreign suppliers, that will take place largely over the coming 3-12months. Then they will have to decide when and how much to pass onto consumers.
BRC added: "Given that the retail industry remains highly competitive and, if anything, risks to growth in consumer demand are weighted to the downside, it is likely to be less than implied by exchange rate movements. Imported input prices have been rising since the end of 2015, but so far they have made little impression on the persistent deflation we have seen in shop prices.
Garden centre owners say short term imported high-end, high volume lines like Buxus and bay trees are up in price 5-10 per cent but normal ranges are little changed. They say February/March 2017 will be the telling time, then cost prices on bedding big volume lines like osteospermums, campanula and new guinea bizzy lizzies will be important.
Meanwhile, the value of the pound has jumped after a survey indicated the UK's manufacturing sector rebounded sharply in August.
The Markit/CIPS purchasing managers index for the sector rose to 53.3 in August from July's figure of 48.3. A figure above 50 indicates expansion.
The weakening of the pound following the Brexit vote boosted exports, the survey found.
But it also indicated that the weak pound had pushed up firms' costs.
A weakening of the pound makes UK goods cheaper for overseas buyers, but increases the cost of goods imported into the UK.
Since the Brexit vote, the pound has fallen in value by more than 10 per cent against both the US dollar and the euro.
Following the release of the survey, sterling rose to $1.33 against the dollar and was 0.6 per cent higher at €1.19 against the euro.
Prime Minister Theresa May said Brexit talks with the EU would begin in 2017 but would not be "plain sailing".