British Retail Consortium (BRC), a trade association for the UK retail industry, reported on Wednesday that its latest BRC-Nielsen Shop Price Index (SPI) shows that overall shop prices deflated to 1.7% in March this year, from 1.4% in February.
March 2014 was the eleventh consecutive month to see deflation in UK retail prices, the deepest level of deflation since BRC launched the Shop Price Index in December 2006.
Food inflation fell to 0.8% from 1.1% in February and there was a sharp drop in fresh food inflation to 0.6% in March, from 1.5%. In the Ambient food category the rate of inflation rose to 1.0% in March, up from 0.4% and the first increase in inflation in six months. An average of 2.1% was recorded for overall food inflation over the last twelve months and the average was just 1.1% in the last three months.
The lowest ever annual deflation in shop prices for non-food was recorded at 3.2% in March, compared to 3.0% in February. Five sub-categories all reported annual deflation in March, with clothing and footwear category showing the deepest level of deflation ever recorded by the SPI. Deflation in electricals was deeper than the overall non-food rate, while furniture and flooring achieved deflation for 12 consecutive months. Shop prices for books, stationery and home entertainment deflated for the fourth consecutive month.
Annual inflation in the health and beauty category was recorded at 0.6%, compared to 0.8% in February. Toiletries and cosmetics inflation decelerated, while there was a slight acceleration in personal care inflation rate.
DIY, gardening and hardware shop prices remained deflationary in March, 0.9% lower over the year and driven by tools and equipment for the house. However, the SPI figures show that prices for glass, tableware and household utensils were inflationary.
The BRC added that although UK house prices are about 3% below the peak in 2007, property prices increased by 0.6% in February and were 9.4% higher than February 2013. Mortgage approvals were above the previous six-month average of 67,461, increasing to 76,947 in January.
According to the BRC, the Consumer Price Index (CPI), the official measure of inflation, increased by 1.7% in February, down from 1.9% in January. Price movements of motor fuels reportedly contributed to the improved figures, with petrol falling by GBP0.08 per litre between January and February 2014. Lower gas and electricity, clothing and air transport prices also contributed to the downward pressure. CPI was at its lowest level for over four years in February, which as well as improving living standards, also meant that it fell below the Bank of England’s 2% target.
Competition on prices and promotions in the grocery markets is expected to further intensify, as some supermarkets reported lower sales figures in February. This is expected to result in the level of shop price inflation continuing to stay low over the next few months. The most recent BRC Retail Sales Monitor indicates that 3-month total food growth is the lowest since at least December 2009, at just 0.4%.
Real disposable income for households’ is said to have decreased by 0.1% in the fourth quarter of 2013. compared to the previous quarter. Average earnings growth is expected to increase to 2.5% in 2014, according to the Office of Budget Responsibility, which has predicted that average earnings will rise more rapidly than inflation throughout its forecast period. It also anticipates that growth in real household disposable income per capita will grow at 0.5% in 2014 and 1.2% in 2015.