Retail inflation falls

Overall shop price deflation was 0.4 per cent, a slight increase in deflation from the 0.3 per cent June figure, with Non-Food prices decreasing by a tenth of a percentage point in July to 1.5 per cent, compared to the June decrease of 1.4 per cent.

British Retail Consortium chief executive Helen Dickinson said: "July saw lower Food price inflation than in June, bringing the march of overall Shop prices towards inflationary territory to a halt, for now at least.

"Lower Food price inflation in July was, in part, the result of the easing of upward pressure from the currency depreciation on Fresh Food. Shorter stock cycles in Fresh Food mean that more of the impact of the currency depreciation fed through into inflation earlier in the year and hence it is now subsiding. However, the upward pressure on Food inflation has not entirely disappeared: Ambient Food prices are still affected and as seasonal pricing dynamics play out, we could see Fresh Food inflation pick up again.

"At the same time, Non-Food price inflation is only edging upwards slowly.  The lack of upward movement in Non-Food inflation may seem surprising, given the size of the currency depreciation last year and the public attention given to price increases of some products. However, while in many cases retailers’ new ranges are coming in at higher price points in response to the increased cost of importing goods, other core products are seeing reductions in prices, as retailers compete to keep prices low for consumers where they can. For now, these dynamics are keeping overall Non-Food inflation low, although strong upward pressures remain.  There is a limit to how much retailers can absorb into their margins and with more businesses seeing the protection from hedging contracts expire as we move into the autumn we expect non-food prices to get closer to inflationary territory in future."

Nielsen retailer and business insight head Mike Watkins said: "The amount of inflationary pressure coming from retail remains less than from other elements of the economy and in the last few weeks, whilst we have seen a return to more normal weather, the level of consumer demand remains unpredictable. Which means retailers are cautious about passing on price increases, in particular at key retail price points. So promotional activity is still an important stimulant of demand as consumers become more cautious in the face of higher living costs."

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