Mild inflation returns amid rising food prices

Boxing Day sale
Online spending is expected to hit £1.43bn this Boxing Day.

Mild inflation has returned after shop prices rose for only the third time in five years in November, as grocery price rises accelerated and the rate of deflation in non-food categories slowed.

British retailers – who have tried to keep their prices down in the face of tough online competition and weaker consumer spending and confidence – lifted their prices by 0.1 per cent year-on-year, according to the latest Shop Price Index from the British Retail Consortium and market research firm Nielsen.

November’s rise compares to a fall of 0.2 per cent in October, and makes it the third month of inflation in five years.

The index indicated that non-food prices were lower in November compared to the same month last year, but the rate of deflation of non-food products eased to 0.8 per cent – the lowest rate of deflation since March 2013.

Clothing and electricals kept non-food prices in inflationary territory, while all other non-food categories saw modest year-on-year inflation.

However, overall food inflation accelerated to 1.6 per cent in November, compared to 1.3 per cent in October.

Fresh food inflation picked up to 1.2 per cent in November from one per cent in October, while ambient food inflation accelerated to 2.1 per cent in November from 1.8 per cent in October.

BRC and Nielsen said the acceleration in food prices resulted from both a dip in inflation last year, which made higher inflation this year more likely, and from higher global cereal prices pushing up on the prices of several foods included in the shop price index.

However, with global food prices as a whole falling, sustained upward pressure on food price inflation was not expected, although short term effects may cause it to fluctuate.

The BRC and Nielsen added that these inflation figures are good news for consumers, as prices were “basically unchanged” from this time last year, with significant reductions in some categories.

Black Friday discounts were captured in these figures.

“As we approach the Christmas season, the good news for consumers is that prices have remained almost unchanged in November,” BRC chief executive Helen Dickinson said.

“Furthermore, falls in the price of clothes and electrical goods will be a welcome bonus as the public prepare to do their Christmas present shopping.

“However, the low inflation presents a more difficult picture for retailers who are facing weak consumer demand and uncertainty surrounding Brexit.

“If the government wishes to rebuild business confidence, they must work fast to ensure we get a transition period that gives retailers and their suppliers time to adapt to business outside the EU.”

Nielsen head of retailer insight Mike Watkins said: “Whilst there has been a small increase in retail prices since the end of the summer, shop price inflation remains below CPI.

“Prices continue to fall in non-food as shoppers are still cautious about spending. We have also seen deeper promotions ahead of Black Friday and the wider benefits from membership schemes also being messaged to shoppers.

“With the recent slowdown in sales growth across food retailing and the start of seasonal advertising, we can expect further price cuts as the battle for shopper loyalty this Christmas begins to heat up.”

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