Supermarket wars have forced food prices down
Annual food price inflation eased to its slowest rate for at least three years last month amid ‘fierce competition’ in the supermarket sector, figures revealed today.
The British Retail Consortium (BRC) said food inflation dropped to 1.3% in February after supermarkets fought to attract customers and as the effects of last year's weak pound on import costs worked through.
Caution among consumers also saw retailers hold off from passing on price rises, said the BRC.
Fresh food prices are now falling year-on-year after deflation of 0.3% in February — the first time in the history of the BRC index.
Shop price inflation overall fell to 1.7% from 2.3% in January, despite ongoing pressure from the impact of the VAT reduction reversal.
Non-food price inflation remained static at 1.9%, although a number of goods are cheaper than this time a year ago — including some electricals, home entertainment and clothing.
The BRC said: “Now that the past falls in the value of sterling and some of the sharp movements in the price of commodities are firmly entrenched into food prices, a clearer picture has emerged in which fierce competition in the grocery market is pushing down the price of food, to the benefit of customers.”
Stephen Robertson, director general of the BRC, added: “Barring any lasting shocks, the price of food should continue to be relatively stable for some time.”
But there are fears of a return to higher import costs after the pound tumbled back again this week as a result of growing uncertainty over the general election and the potential for a hung parliament.
Sterling also took a hit after recent comments from Bank of England boss Mervyn King suggesting that the door was open to further money boosting efforts under the Bank's quantitative easing programme.
Oil prices have also been creeping back up, which will add to inflation.
The BRC said competition in the retail sector should help to mitigate these factors, with stores “taking the impact on margins rather than passing these costs on to consumers”.
Inflation for the cost of vegetables and fish came down the most last month, its figures showed.
In non-food, the electricals and home entertainment categories both saw deflation of 2% or more on a year earlier.
But price inflation for DIY, gardening and hardware products hit 7.8%.