Overall shop prices near inflation

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Shop prices are teetering on the edge of inflation as the cost of food increases and retailers near the end of their ability to shield customers from exchange rate pressures, a survey suggests.

Prices fell just 0.1% in September, their shallowest level of deflation in the last four years, and down from a 0.3% year-on-year decline in August, according to the BRC-Nielsen Shop Price Index.

Deflation on non-food items accelerated to 1.5% in September, from 1.3% in August, but this has slowed significantly on last September when they had fallen 2.1% year-on-year.

UK-grown seasonal vegetables will soon come to an end for the year.
UK-grown seasonal vegetables will soon come to an end for the year (Nick Ansell/PA)

A sharp jump in food price inflation to 2.2% over the year is up from 1.3% in August, with fresh food gaining a full percentage point to 1.8% from 0.8% in August.

British Retail Consortium chief executive Helen Dickinson said a global milk shortage pushing up butter prices, rising global cereal prices and the approaching end of the UK seasonal vegetable season had combined to push up food prices.

Meanwhile, retailers' efforts to shield shoppers from the impact of higher import prices of basic non-food items were holding out "for now", but consumers were likely to start feeling an additional pinch on these products.

Ms Dickinson said: "This more challenging outlook for consumers going forward is made more ominous by the recent uptick in producer price inflation - the first since February - which is adding further inflationary pressures on the horizon.

"Stretched family budgets will continue to feel the strain as increases in the price of the weekly shop add to overall rising inflation, which continues to outpace wage growth.

"Consumers and businesses need the Government to reach prompt agreement with the EU on the terms of a Brexit transition, to ensure they aren't faced with a cliff-edge scenario that could mean tariff-related price increases on top of those they are already paying."

Mike Watkins, head of retailer and business insight at analysts Nielsen, said: "The uncertainty around the buoyancy of consumer spend has meant that non-food retailers are keeping price increases to a minimum to help maintain sales growth, and whilst shoppers are seeing increases on their supermarket till receipt as the upward pressure on cost prices filters through, some of the shop price inflation is due to the end of seasonal price cuts in fresh foods.

"The good news is that inflation is expected to peak over the next few months and with consumers still uncertain about when and where to spend, we expect competition for discretionary spend to intensify as we head towards the end of the year with more promotional savings for shoppers across all channels."