Non-food inflation falls to zero
08 February 2012 10:06
The BRC-Nielsen Shop Price Index (SPI) today reported that shop price inflation in the non-food category has fallen to zero. Overall SPI fell to 1.4% in January from 1.7% in December. This is the lowest inflation rate since March 2010. Food inflation slowed to 3.7%, the lowest since July 2010.
The slowing rate of shop price inflation was in part driven by the VAT increase falling out of the annual comparisons, but isolating this impact is difficult given some retailers delayed the introduction of the rise, which came into effect on January 4th 2011. Other factors bearing down on inflation include the continuing easing in commodity markets and freight costs. In the medium term, inflation is expected to fall further over the coming months as these pressures work their way through the supply chain and retailers continue to use promotions and discounts to drive sales in the weak consumer environment.
Demand in the grocery sector "remains subdued", with consumers continuing to look for discounts to help manage their household budgets. Evidence from Nielsen suggests consumer demand for straight price discounts on grocery products is becoming more popular that multi-buy offers. The future path for inflation and the UK recovery is difficult to judge. In a recent speech the Governor of the Bank of England, Sir Mervyn King, said that the recovery is "likely to be arduous, long and uneven". The Bank of England is widely expected to make further asset purchases this week to help stimulate the economy and prevent the risk of inflation falling below its target.
Commenting, Stephen Robertson, British Retail Consortium director general, said: "With the impact of the 2011 VAT rise finally gone from annual comparisons these figures show how retailers are holding down prices for customers despite a range of upward pressures. Even though retailers are facing higher transport and property costs, overall non-food prices are exactly the same as a year ago. Within that, clothing, furniture and electricals were all cheaper than 12 months ago with the price of electrical goods falling at its fastest rate for three years.
"Food price inflation continues to come down and is now the lowest it's been since July 2010 thanks to discounting and cheaper commodity costs working through.
"Further falls in the official rate of inflation, which are expected during the coming months, should be a boost to customers' budgets and, crucially, should help to improve consumer confidence. For there to be any significant improvement in retailers' fortunes in the coming year it's essential that people feel better about their personal finances and become more willing to spend."
Mike Watkins, senior manager, retailer services at Nielsen said: "Shoppers are indicating that they still need to economise on spending in 2012. With retail sales after Christmas off to a slow start, food retailers in particular continued to offer savings in January with price cuts and promotions on everyday items being used across the industry. These initiatives as well as the underlying slowing of inflation and the annualisation of the VAT increase, are bringing shop prices down and closer to the historical levels we have seen over the last few years."
Retail news is updated every weekday and is provided courtesy of: 
