By Jonathan Davies
Overall shop prices reported deflation for the 19th consecutive month in November, unchanged at 1.9%, according to the British Retail Consortium (BRC)/Nielsen Shop Price Index.
Despite the prolonged deflation of shop prices, food prices have maintained at least weak growth. But in November, food prices deflated by 0.2%. It's the first time food prices have deflated since the index was launched in 2006.
Both the fresh and ambient food categories reported annual deflation, falling 0.3% and 0.2% respectively.
The prices of the majority of the agricultural commodities that we follow have consistently fallen over the year, with some exceptions. While sugar and cotton prices are weighed down by large global supplies and record global production, coffee, cattle and cocoa prices spiked due to weather related conditions restricting supply. Cattle prices had recently fallen back from this year’s price highs on news of feed costs decreasing; however the recent cold snap in Northern America lead to restricted supply and strong foreign demand is likely to keep prices elevated in the near term.
Helen Dickinson, British Retail Consortium Director General, said: “Food prices were deflationary in November - the first time since our records began in December 2006. Non-food prices also fell, compared with last year, meaning overall shop prices have been deflationary for nineteen consecutive months. November equalled the record low deflation of 1.9% reported in July 2014.
“We also saw the first rise in real incomes for over five years. Downward pressure from falling shop prices pushed the overall rate of inflation in the economy below the rise in average wages. With the recovery in the labour market robust, the outlook for further rises in real incomes looks positive.
“Falling commodity prices, particularly oil, suggests the outlook for inflation remains benign. The price of oil, a near five year low, has a significant impact on the costs of producing food, impacting everything from the cost of feed to transport. Given the intensity of competition in the food sector, these savings have been passed on to consumers in the form of lower prices. The strong Pound has also helped keep prices low as imports are now cheaper and it’s worth remembering that the UK gets roughly a quarter of its food beyond its shores.
“At the same time, we’re seeing the big supermarkets investing in price cuts worth millions of pounds during a hugely competitive period in the food market. With food prices down, wages up, a highly competitive market keeping inflation low; and Christmas around the corner, there are plenty of good reasons to assume a strong trading period lies just head of us”.
Mike Watkins, Head of Retailer and Business Insight, Nielsen, said: “ It`s been another slow start to Christmas trading and momentum on the high street has been reliant on retailers promoting and running `discount days` to drive shoppers into store. With little inflationary pressure we anticipate the good festive deals to continue and the savvy Christmas shopper can expect some very competitive prices across food retailers, in particular for fresh and seasonal foods, where some prices are lower than last year”
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