Shop price inflation at six-year high

Shop prices increased slightly in February to reach the highest inflation rate in six years as retailers found themselves stuck between costs and cautious consumer spending, figures show.

Shop prices were 0.7% higher in February than the same time last year, up from 0.4% in January – the highest inflation rate since March 2013, according to the BRC-Nielsen Shop Price Index.

The rise was driven by non-food prices increasing for the first time in six years, by 0.2% year-on-year in February compared with a January decrease of minus 0.2%.

Food inflation inched up slightly to 1.6% from January’s 1.5%, but fresh food prices were 1.7% higher than a year ago, up from 1.2% in January.

The British Retail Consortium (BRC) said the increase in non-food prices reflected the slow release of significant cost pressures which had built up in the supply chain over the last two years, notably from the currency depreciation in 2016 and the rise in oil prices last year.

However, non-food prices remain below 2016 levels, with the BRC noting that heavy discounting would return given weak discretionary spending and intense competition.

BRC chief executive Helen Dickinson said: “For the first time in almost six years the price of non-food goods rose, albeit slowly, as cost pressures which had been building in the supply chain over the past few years fed through into prices.

“This adds to gradual ongoing rises in food prices, resulting in the highest overall shop price inflation since March 2013.

“While price rises over the last six months have been relatively modest, a no-deal Brexit would have a much more immediate and dramatic effect.

“If this happens, prices of both food and non-food would rise as a result of any new tariffs, the cost impact of any delays at borders, increased administration, and the likely currency depreciation.

“Parliament must protect British consumers by agreeing a solution that avoids a chaotic no-deal Brexit.”

Mike Watkins, head of retail and business insight at Nielsen, said: “Whilst shop prices have moved upwards slightly in February, economic growth is slowing and there is still weak retail growth.

“So, for as long as shoppers continue to be cautious, it will be difficult for the industry to pass on in full any cost price increases coming through the supply chain, particularly as around half of households are still reluctant to spend and many have concerns about the economy.

“Retailers will need to simplify the shopper experience, improve customer engagement and deliver good value for money to encourage shoppers to spend.”