Competition among UK retailers results in continued price deflation

London shopping centre

Competition among UK retailers for market share has resulted in the deepest level of shop price deflation since December 2006, according to trade association British Retail Consortium (BRC), which released its Shop Price Index June 2014 on Wednesday.

The BRC-Nielsen Shop Price Index (SPI) measures UK shop price inflation each month and is administered by information and measurement company Nielsen, which collates the data on behalf of the BRC. The SPI measures changes in the price of 500 items that are most commonly bought.

SPI figures revealed that UK retail price inflation dropped for the fourteenth consecutive month, deflating to 1.8% in June this year, compared to the same period in 2013. Food inflation was the lowest recorded at 0.6% in June, while non-food deflation accelerated to 3.4% in June this year, up from 2.8% in the month before.

British Retail Consortium director general Helen Dickinson commented that “Consumer confidence is at its highest level since April 2005. Fierce competition among grocers has driven food price inflation to record low levels and with some grocers having announced plans to keep prices down, consumers stand to benefit for a while to come. While sports fans are doing well this summer with great deals to be found in Clothing, Footwear and Electricals.”

Dickinson added that “The backdrop was equally promising with stable commodity markets and the continued strength of sterling suggesting inflation is set to remain low in the medium term. Although of course, a strong pound is not so good for those retailers exporting – one exciting and growing area in British retail.

“However, it is clear that retailers are making sure these positive economic benefits in the home market are being passed on to consumers while they themselves will cheer on the very low Producer Price Index – an indication of the cost pressures they face.”

Mike Watkins, Nielsen’s head of Retailer and Business Insight, said: “Food inflation is still low, many supermarkets are price cutting and non-food prices remain deflationary, so the high street continues to generate little inflationary pressure. Little in the way of immediate seasonal or weather related price increases is anticipated so the outlook for the next three months is for relatively stable shop price inflation. Helped by the increases in consumer confidence since the start of the year, this should encourage shoppers to spend more freely over the summer months.”

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