Shop prices start to rise as deflation eases off, index shows

Consumer demand has been increasingly difficult to predict
Consumer demand has been increasingly difficult to predict

Shop prices are showing the first signs of an upward trend as deflation eased in December and the cost of clothing and footwear increased, figures show.

Overall, shop prices were down 1.4% in December on the same time last year, an easing from 1.7% in the previous two months, according to the BRC-Nielsen Shop Price Index.

However, the majority of categories monitored for the index saw month-on-month increases in prices, with clothing and footwear seeing month-on-month inflation for the first time in nearly two years.

Deflation across non-food prices slowed to 1.9%, down from 2.3% in the previous month - the weakest rate since June 2015.

Food deflation decelerated marginally to 0.7% from the 0.8% fall in November, fuelled by the ongoing supermarket price war, while fresh food deflation remained at 1.2% for the second consecutive month but was down from the three-month average of 1.5%.

“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,” said British Retail Consortium CEO Helen Dickinson.

“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 that retailers will have little choice other than to pass on some of these rising costs into prices but effect will be lessened by the intensity of competition.”

Mike Watkins, head of retailer and business insight at Nielsen, said: “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.”