FOOD COST INFLATION FILTERS THROUGH TO PRICES

Year-on-Year

The BRC-Nielsen Shop Price Index (SPI) for September shows that prices were 0.4% higher than at the same time a year ago, the same year-on-year rise seen in August.

After slowing in the previous four months, food inflation increased in September, rising to 2.7% compared with 2.1% in August. This increase comes as food cost inflation, which has been building over the past few months, has begun to filter through to both fresh and ambient food prices. Food continues to be the sole cause of inflationary pressure from the high street.

Within non-food, there is no sign of any let-up in price deflation, with prices recording a year-on-year decline in every month so far this year. In September, non-food prices were 0.7% lower than at the same time a year ago, a larger rate of deflation than the 0.4% in August.

Month-on-Month

After showing no change between July and August, shop prices increased by a marginal 0.2% between August and September. This was caused solely by food prices, which rose by 0.6%, the largest month-on-month increase since December 2006. Non-food prices fell slightly by 0.1% between August and September, as promotional activity and general deflation continued.

Although certain food commodities have risen sharply in price year-on-year, food retail price inflation remains relatively low. There is still deflation in non-food prices, which looks set to continue in the long term. Inflationary pressure from retail is low and is no doubt making a big contribution to achieving the Bank’s 2% target for CPI.

Kevin Hawkins, Director General, BRC comments:

"Overall shop price inflation is being kept low yet again by intense price competition and promotional activity within non-food. However, this is being outweighed by food, where cost inflation is starting to work through to retail prices, especially in fresh produce. A large proportion of these cost pressures are being absorbed by retailers, helping to keep prices down.

"However, we have yet to see the full effects of high interest rates on consumer spending and a rate cut now by the Bank of England would provide some much needed relief to consumers and retailers alike."

Mike Watkins, Senior Manager, Retailer Services, Nielsen comments:

"Whilst there is some underlying cost price inflation building in food, retailers have increased promotional activity over last 6 months as sales have slowed or have been unpredictable and this has helped to keep many prices lower. In fact the UK has the highest level of promotional activity in food retailing of any country in Europe and this is unlikely to change in the foreseeable future.”

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