Shop price inflation looms as imported food prices rise

Overall shop price deflation was 0.3% in June, a slight deceleration from the 0.4% fall in May according to British Retail Consortium/Nielsen figures.

This is the shallowest deflation rate since November 2013. Deflation of non-food products was 1.4%, comparable to May’s deflation of 1.5% and April’s of 1.4%.

Food prices increased on average by 1.4% in June, a similar pace to the 1.4% May increase and the highest since January 2014.
Fresh food prices seem to be on an upward trajectory, recording a 1.4% increase in June, 0.2% higher than in May. This is the highest increase since February 2014.
Ambient food inflation stood at 1.5% in June, a slowdown from the 1.8% increase in May.
Bents Home & Garden garden centre managing director Matthew Bent said food prices are going up "massively" on both retail and catering sides. He said he is trying to resist price increases but imported food such as coffee is going up in price fast, and some products are becoming unaffordable to keep on the menu.
He added that the full extent of the weakening of sterling post Brexit vote in June 2016 was only starting to be fully seen, as items such as garden furniture were now starting to show their true price after being forward bought in many cases last year. He said he was concerned because full price increases could kick in later in 2017 and into 2018.

British Retail Consortium chief executive Helen Dickinson said: "Shop prices in June edged closer to ending a four-year deflationary trend, as feed-through from the depreciation of the pound and rising commodity prices continues.

"The fact that the headline number, -0.3%, shows that prices are still down on last year should not be misunderstood. The year on year numbers belie the fact that prices have been heading upwards for the last six months; it’s just that significant deflation in the second half of 2016 means there has been considerable ground to make up in the year on year figures.

"Although heading upwards, the speed of price increases was checked in June. Food price inflation was steady on last month, albeit in firmly positive territory; whilst varied performances in the non-food categories netted out to a slight reduction in deflation.

"The steadying of inflation in June is likely a brief hiatus; resulting from the interplay of short term influences on pricing, such as good weather delaying mid-season promotions into June and the longer term competitive pressures constraining the pass through of all costs. We expect shop price inflation to continue trending upwards in coming months.

"The reality is that cost pressures faced by retailers continue to mount. These pressures arise both from market driven increases in the underlying cost of goods and as a result of Government policies. There is a limit to the ability of retailers to protect consumers by absorbing these impacts into their margins, as a result further price increases are inevitable. With that in mind and with the UK’s trading relationships under discussion, it’s of the utmost importance that the Government does all it can to limit any further cost increases that could further adversely impact the finances of the UK’s consumers."

Nielsen retailer insight head Mike watkins said: "With inflation rising in essential goods and services, many households are now seeing their monthly household expenditure come under pressure.  Whilst this may add to the uncertainty around discretionary spending, the good news is that shop prices are increasing at a slower rate. Shoppers are also able to find further savings in retail with low price strategies across the grocery sector and competition across the marketplace keeping prices as low as possible."  

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