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Food prices plunge to record low - but not for long, warn trade bosses

Published 05/09/2016

Spending has remained buoyant despite fears Brexit uncertainty would hit retail sales
Spending has remained buoyant despite fears Brexit uncertainty would hit retail sales

Shoppers enjoyed falling prices last month as the cost of food hit a record low and retailers continued to roll out discounts, a report has revealed.

The latest British Retail Consortium (BRC)-Nielsen study recorded overall shop price deflation of 2% in August, compared to a 1.6% decline the month before.

The slide in prices was triggered by more promotions from retailers coupled with a drop in the cost of oil, according to the shop price index.

Food price deflation also accelerated to a record low of 1.1% in August, compared to 0.8% in the previous two months, as a global supply glut of wheat weighed on prices.

Non-food deflation also hit 2.5% last month from 2.2% in July.

The report said that retailers had yet to feel the full force of the rising costs caused by the plunge in the value of the pound following the Brexit vote.

However, Helen Dickinson, chief executive of the BRC, said prices are expected to rise in the coming months when costs are passed down to consumers.

"The devaluation of sterling in wake of the referendum will put upward pressure on shop prices.

"But that's likely to take several months to properly feed through, given that retailers won't feel the brunt of the cost increases until existing contracts with foreign suppliers come to an end.

"Even then, retailers will have to make a decision about when and how much to pass onto consumers. Given the strength of competition in the market, and if the economy softens in line with predictions, any pass through may be more limited than implied by the exchange rate movement."

Spending has remained buoyant despite fears Brexit uncertainty would hit retail sales after Britain voted to leave the European Union.

The Office for National Statistics (ONS) announced last month that retail sales had leapt 1.4% in July, with economists pencilling in a rise of 0.1%.

It comes after retail sales suffered their sharpest fall in six months in June, contracting by 0.9% from a month earlier.

The latest consumer confidence figures also showed a post-Brexit recovery, as Britons prove they are determined to carry on shopping rather than save.

August's GfK Consumer Confidence Index was up five points to minus 7.

Speaking about the shop price index, Mike Watkins, Nielsen's head of retailer and business insight, said: "Lower prices than a year ago across most channels with further price cuts by supermarkets has been good news for shoppers and helped to keep consumer spend buoyant over the summer.

"Competition for discretionary spend is likely to intensify as we head towards the end of the year, so retailers will be keen to keep prices low and promotions sharp."

Inflation rose to a higher-than-expected 0.6% in July as the increasing cost of motor fuels and second-hand cars drove up transport prices, the ONS announced last month.

Consumer Price Index (CPI) inflation in July was up from 0.5% in June .

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