Shop prices remain on brink of inflation

Shop prices have remained teetering on the edge of a return to inflation for the third consecutive month against a backdrop of higher import costs and a squeeze on discretionary spending.

Shop prices decreased at an annual rate of 0.1% for the third consecutive month in November, the shallowest deflation rate in the last four years, according to the BRC-Nielsen Shop Price Index.

Non-food deflation eased in November to 1.1% from 1.5% in October, the lowest rate since May 2013.

Food inflation slowed in November.
Food inflation slowed in November (Julien Behal/PA)

However, in some good news for grocery shoppers ahead of Christmas, food inflation overall fell back in line with global prices to slow to 1.5% from 2.2% in October, and fresh food inflation decelerated sharply to 1.3% from 2.2% in October.

British Retail Consortium chief executive Helen Dickinson said: "For the third consecutive month shop price inflation remained static, still teetering on the edge of a return to inflationary territory.

"The lower projections for consumer spending that came from the Office for Budget Responsibility's downbeat forecast last week, and uplifts in labour costs, conjure up a perfect storm of economic pressures looming over an industry that's already fiercely competitive.

"That's why we were pleased that the Chancellor listened to us and others and brought forward the switch from RPI to CPI indexation on business rates - not the fundamental reform needed but an important step forward which will undoubtedly ease some of the pressure and enable retailers to continue with some investment which would otherwise have been threatened.

"However against a backdrop of higher import costs and a tightening squeeze on discretionary spending power, the challenges to the industry remain stark.

"So we will continue to press the Government to put business taxation on a more affordable and sustainable footing and to enable the industry to invest in the digital skills that are needed today and in the future."

Mike Watkins, head of retailer and business insight at Nielsen, said: "Shop price inflation has been increasing in line with the CPI for the last six months but the index still tracks below that of the UK inflation as a whole, and the peaking of food inflation is a welcome boost to shoppers with Christmas shopping under way.

"Many inflationary increases are still being absorbed by retailers and are not being passed on to the consumer in the form of higher prices.

"Nevertheless, the deflation in non-food continues to overshadow the discounting and promotional activity taking place in this channel as consumers become more cautious and look for ways to save on their household bills."

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