Both food and non-food prices continued to rise last month further squeezing consumer spending, research today suggests.
Overall shop price inflation increased to 2.9 per cent from 2.3 per cent in May, according to data from the British Retail Consortium (BRC) & Nielsen, even though many summer sales started early to tempt customers back into stores.
Food inflation saw the biggest increase, up 0.8 per cent in June to 5.7 per cent, but spending in supermarkets has remained solid if not spectacular in recent months.
Stephen Robertson, Director General of the BRC, said: “Headline food inflation is up, but 39 per cent of grocery spending is going on promoted goods, showing there are lots of offers available and savvy shoppers are taking advantage to minimise the impact on real-life bills.”
Non-discretionary spending however has subsided significantly since the start of the year, and the increase in non-food inflation from 0.8 per cent to 1.3 per cent last month will surely heap further pressure on beleaguered retail sectors such as electricals and homewares.
It seems many retailers are currently caught trying to balance priorities; raising prices to maintain margins with commodity prices continuing to creep up, whilst discounting enough to encourage reluctant shoppers to spend.
“Considering January’s VAT rise, non-food inflation is still very low,” Robertson added.
“The latest bout of retail administrations shows how weak consumer spending is. Retailers are using discounts to generate sales at the expense of margins.
“Sales have started earlier this year, especially in clothing and footwear, where prices are actually cheaper than a year ago.”
Robertson also points out that shop price inflation remains behind mainline inflation, with the government’s official measurement, the consumer price index, stood at 4.5 per cent in May.
Retailers are obviously trying to limit the impact of wider economic conditions by cutting prices and generating more offers but the strain on companies’ bottom lines will become increasingly pronounced the longer these market conditions persist.
Mike Watkins, Senior Manager of Retailer Services at Nielsen, commented: “Retailers have responded by maintaining the historically high level of promotions which is helping shoppers to cope with falling household income.
“With shoppers indicating that they are becoming even more cautious about spending, this will impact discretionary spend further so all retailers will have to keep a focus on managing any cost price increases over the next six months.”