Lower food price inflation in July has brought the march of overall shop prices towards inflationary territory to a halt, the British Retail Consortium (BRC) has said.
Overall shop price deflation came in at 0.4% last month, according to the latest figures from the BRC and Nielsen.
This slight increase from the 0.3% June figure suggests retailers are being cautious about passing on price increases while consumer demand remains unpredictable.
Lower food price inflation
In the early part of this year, the rate of deflation in food prices slowed, as increased commodity costs forced grocers to begin nudging prices up.
However, this was not the case in July, when the recent trend reversed and prices started to fall again.
In July, overall food inflation slowed down to 1.2%, from 1.4% in both June and May.
In fresh food, inflation slowed to 1%, from 1.4% in both June and May.
BRC 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, inflation continued in ambient food, reaching 1.6% in July, up 0.1%.
“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,” Dickinson said.
Non-food price inflation edged upwards marginally to 1.5%, from 1.4% the previous month.
Dickinson said: “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.”
Looking ahead, Dickinson said: “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.
”Notwithstanding pressures on shop prices, further increases in inflation in other areas of the consumer spending basket are likely in coming months. That will put UK households’ already squeezed finances under increasing strain.
”The Government should be doing all it can to avoid further, potentially significant, increases in the cost of living from a failure to reach a deal with the EU that ensures no new tariffs and secures a fair Brexit for UK consumers.”