Shop price deflation remains at four-year low

Shop price deflation remains at a four-year low as a squeeze on discretionary spending power slows retailers from passing on rising costs, a survey suggests.

Prices fell just 0.1% in October, the same rate as in September and their shallowest level of deflation in the last four years, according to the BRC-Nielsen Shop Price Index.

Deflation on non-food items remained at 1.5%, and food prices recorded the same increase as in September of 2.2%.

Fresh food inflation accelerated to 2.2% from 1.8% in September, countered by ambient food inflation which eased to 2.2% from 2.7% in September.

British Retail Consortium chief executive Helen Dickinson said: "On the one hand global food prices continue to head upwards at the same time as the weaker pound has left retailers facing significantly higher bills for imported goods.

"On the other hand, the tightening squeeze on discretionary spending power is reducing the ability of retailers to pass on increased import costs.

"This month's figures only serve to illustrate the enormous challenges of the current environment. And while retailers are doing their best to provide value to keep prices low for consumers who are feeling the pinch of falling real wages, in an industry where margins are already low, the capacity to absorb further cost increases is wearing thin."

Mike Watkins, head of retailer and business insight at Nielsen, said: "Disposable income is coming under pressure, however consumers are benefiting from the continuation of promotional activity, the use of vouchers and price cutting, in particular by supermarkets.

"This is going some way towards making up any shortfalls in spending power as cost price inflation begins to impact prices."