BRC: shop prices show first signs of upward trend

December saw an easing of shop price deflation, according to the British Retail Consortium (BRC) – Nielsen Shop Price Index for last month.

Overall shop prices reported deflation of 1.4% in December, a deceleration from the 1.7% fall in the previous two months. Non-food deflation decelerated to 1.9%, down from 2.3% in the previous month. This is the weakest deflation rate since June 2015.

BRC chief executive Helen Dickinson OBE said: “Prices were down 1.4% compared to last year, but the majority of the categories we monitor, particularly non-food, saw month-on-month increases in prices, with clothing and footwear seeing month-on-month inflation for the first time in nearly two years.

“We’ve said for some time that we expect to see underlying inflationary pressures, notably from the post-referendum fall in the value of the pound, feed through into shop prices.

“It’s too early to confirm that this is what we’re seeing in December’s figures: timings of seasonal discounts can cause monthly fluctuations at this time of year and retailers have continued to find ways to mitigate the impact on consumers.

“However, we expect the general trend in inflation to be upwards over 2017. The magnitude of the exchange rate movement and commodity price rises, combined with the increasing costs of doing business, means retailers will have little choice other than to pass on some of these rising costs into prices. But the effect will be lessened by the intensity of competition.”

Nielsen head of retailer and business insight Mike Watkins added: “Consumer demand has been increasingly difficult to predict in recent weeks, and retailers continued to hold back on price increases in December to ensure a strong end to the year.

“However, whilst the supermarket price war helped food prices to fall in the run up to Christmas, we are now seeing the first impact of the currency depreciation of the last six months, with increases in retail prices for some non-foods such as clothing.

“Over the next six months we can expect the return of shop price inflation. But as the battle for the wallet of the shopper is so intense, this will be phased in by retailers – and any increases are likely to be less than other sectors of consumer spend, as measured by the consumer price index.”

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