January stock clearance drives shop prices lower

• Overall shop prices reported deflation of 1.7% in January, an acceleration from the 1.4% fall in December.
• Non-food deflation accelerated to 2.3% in January, deeper than the 1.9% decline in the previous month.
• Food deflation accelerated to 0.8% in January from the 0.7% decline in December. This compares with a 0.7% fall on a 3-month basis.
• Fresh Food deflation remained at 1.2% for the third consecutive month.
• Ambient Food moved back into deflationary territory after a marginal rise in December, falling 0.2% in January.

Helen Dickinson OBE, chief executive at British Retail Consortium said:?January bucked the monthly trend of an easing in shop price deflation, with prices down 1.7 per cent compared to January 2016; a larger year on year fall in shop prices than the 1.4 per cent fall in December. For now, consumers continue to benefit from falling shop prices year on year. However, fluctuations in the monthly figures belie an underlying trend of building cost pressures that are gradually feeding through from the fall in sterling combined with higher commodity prices. This will inevitably mean that we start to see a general upward trend in inflation over 2017.

?In fact month-on-month food prices were up, although the impact of this on inflationary pressure was offset by the discounting of excess stock by a number of non-food retailers after a tepid sales performance over the festive period.

?Retailers? focus will be on protecting their customers from the effects of increasing input costs, but with the cost of doing business rising and margins and profits being squeezed, their efforts will require the support of public policies that help them keep prices low for shoppers. This means capping the annual uplifts in business rates and ensuring no new tariffs remains a core objective of the negotiations on exiting the EU.?

Mike Watkins, head of retailer and business insight at?Nielsen commented: “Consumer demand was perhaps better than expected at the end of last year and retailers are still managing to limit currency related cost increases being passed onto shoppers. This is helping to give some stability to the industry at the start of 2017. However, there is already inflationary pressure elsewhere in the economy and this will start to have an impact on the disposable income of households later in the year.”