Shop price deflation eases in June, BRC-Nielsen says

8th Jul 2015 10:25

Food prices in June fell at their slowest rate for several months and non-food retail price deflation eased off as overall shop prices fell 1.3% in June, up from -1.9% in May.The monthly BRC-Nielsen Shop Price Index (SPI) for June 2015 showed annual food deflation of 0.4%, the lowest since February, while non-food deflation slowed to 1.9% in June from 2.5% in May.The index showed 12-month average deflation of 1.7%, with BRC-Nielsen noting that this was the 26th consecutive month of lower overall pricing in the UK."Retailers continue to use price cuts and promotions to stimulate sales which is helping to maintain shop price deflation, and we see little evidence to suggest that prices will rise in the near future," said Nielsen's head of retailer and business insight, Mike Watkins."With many food retailers still using price cuts to attract new shoppers, this is lowering the cost of the weekly shop and so the overall CPI figure in the UK. Deflation and price led competition will continue to be a key driver of sales growth for some time yet"Analyst Darren Shirley at Shore Capital said he expected any inflationary pressures from rising oil prices to be partially offset by the likelihood of already well-stocked agricultural markets being bolstered by a fulsome Northern Hemisphere harvest."As such, some selected commodities aside, we expect little material upward commodity price pressure; that said, the strong deflationary pressure that has been evident in many key food commodities is increasingly close to annualising."Additionally, the British grocery scene remains in a state of flux as superstores seek to narrow the price differential with the discounters; this week has seen increasingly industry wide cuts in the price of milk, with the price of 1 pint falling from 49p to 45p, and the 2 pint price from 85p to 75p, a step up in the level of discounting that will cost the industry further margin."He noted that chief executives of Tesco and Sainsbury, Dave Lewis and Mike Coupe respectively, have spoken of food deflation well into 2016.Accordingly, he anticipates a flattening of deflationary forces in the UK grocery trade but was more circumspect about a return to food inflation.