Shop prices drop for 27th consecutive month despite food edging up

Shop prices drop for 27th consecutive month despite food edging up

• Overall shop prices reported deflation of 1.4% in July lower than the 1.3% fall in June.

• Food reported annual inflation of 0.1%, up from the 0.4% decline in June 2015. This is the first inflationary rise in seven months.

• On a 12-month average basis, the Shop Price Index reported deflation of 1.7%.

• Non-food deflation accelerated to 2.3% from 1.9% in June.

BRC Director General, Helen Dickinson, said: “Shop prices fell by 1.4 per cent this month marking the 27th consecutive month of prices drops which is good news for consumers.

“In the three months to July, food prices fell by 0.4 per cent as the impact of past falls in oil but lower commodity prices and weaker demand in emerging markets helped support a continued deflationary environment. Annual food prices did rise very marginally this month, by just 0.1 per cent year-on-year, this is a short-term blip in the longer term downward trend, reflecting the on-going heightened levels of competition and it is not very significant.

“July marked the 28th month of falling non-food prices. Clothing retailers were keen to shift their summer stock with widespread discounts clearly part of their strategy. Prices throughout this category fell on average by 4.9 per cent. Furniture and Flooring saw a sharp acceleration in deflation to 2.7 per cent as retailers attempted to capitalise on stronger levels of demand in this category from renewed strength in the housing market.”

Mike Watkins, Head of Retailer and Business Insight, Nielsen, said: “Deflation in retailing has been a big influence on sales over the last 12 months, as has the unpredictable weather, price cuts and short term promotions. In food retailing, whilst ambient prices are becoming more stable, many fresh foods are again cheaper than this time last year and there have been some attractive sales and offers across non-food retailing in recent weeks. Shoppers are saving money which is helping consumer spend in the wider economy.”

Overview

The BRC-Nielsen Shop Price Index (SPI) reported annual deflation of 1.4% in July, marking the 27^th consecutive month of falling shop prices. This was driven by Non-Food where deflation accelerated 0.4 percentage points to 2.3% while Food ticked up to report annual inflation of 0.1%.

BRC-Nielsen Shop Price Index

Source: BRC

The marginal rise in food prices was only the first move into positive territory this year due to the strong comparable a year ago when we witnessed one of the largest declines in food prices.

The graph below shows the movement in the BRC-Nielsen Food index since its inception in December 2005:

BRC-Nielsen food index

Source: BRC

Since the start of 2013, food prices have been fairly stable compared with the longer term upward trend and over the last 18 months they have been on a slight downward trajectory.

Many of the factors that weigh down on prices remain benign. The Bloomberg Commodities Index fell to an 11-year low in July, some 42 per cent below its peak in 2008. Another commodities measure, the Thomson Reuters/CoreCommodity CRB Index, a weighted commodities benchmark, fell 27 per cent in the 12 months to the end of our Survey period (10 July) and hit a six year low at the end of July.

Thomson Reuters/CoreCommodity CRB Index

Source: Thomson Reuters/Jefferies

Oil prices have fallen by 46 per cent in the last year and fell 18 per cent during the month of July to near $50 per barrel.  This was partly due to news that the US would lift sanctions placed on Iran after they agreed to scale back their nuclear programme. Iran, currently the third-largest producer in OPEC, has said it will be allowed to increase production by one million barrels (per day) within a month of sanctions ending, thought to be in late November. They are also believed to have a considerable amount of oil in reserve waiting to enter the market.  The secretary-general of OPEC said last week that they will maintain their current levels of production, with Saudi Arabia and Iraq producing at record levels. This will put further downward pressure on prices.

The price of some agricultural commodities picked up slightly in July. Wheat and Corn rose 7 and 6 per cent respectively in the 12 months to the end of our survey period (10 July). Prices have risen on the back of poor weather in key growing regions of the US. However, recent weather has been more favourable and prices have begun to fall back, both commodities are 13 per cent down since 10 July. Soybean fared slightly better, down 22 per cent on a year ago but with August being a key month in for the production of the crop, weather uncertainties are likely to weigh on prices.

Agricultural Commodities

Source: FT. *Prices as of 10 July to match reporting period

Input Price Inflation as measured by the ONS fell by 12.6% from 12.3% the previous month. Crude oil and home produced food continued to be the main downward contributors, falling 39.7% and 11.0% respectively on an annual basis.

The headline rate of inflation, the Consumer Price Index (CPI) fell back to zero in June, after a marginal rise of 0.1% the previous month following a brief dip into deflationary territory. This came as no surprise to many commentators who expect inflation to hover around zero until the end of the year when the oil price annualises. It’s worth noting that the recent dip in oil prices was not taken into account in the last CPI report therefore we could see the headline rate move back into negative territory when the next set of figures are released later this month.

For the first time, the Bank of England will release a number of key reports on the same day. This will include the Banks quarterly Inflation Report, the Monetary Policy Committee’s (MPC) latest decision on interest rates and the minutes from the meeting. There has been some speculation that two of the members of the MPC are likely to vote in favour of a rates hike. The Governor of the Bank of England hinted in a recent speech that interest rates could be increased at the turn of the year, although the Bank would look at three sets of data before implementing a rise including core inflation, labour costs and the pace of economic activity.

The low level of headline inflation and the continuation of the decline in shop prices have been a welcome boost for real household incomes. With low oil prices, falling commodity prices and cheaper imports, driven by the appreciation of sterling since the turn of the year, consumers will benefit from lower costs being passed through the supply chain.

Shop Price Inflation Annual % Change, Food and Non-food Contribution

Food

In July, the food category reported annual inflation for the first time this year, rising to 0.1% from the 0.4% decline seen in June. This is 0.4 percentage points above the 12-month average of -0.3%.

On a month-on-month basis prices fell 0.1% from a 0.4% rise in June.

Fresh Food

Deflation in the Fresh food category slowed for the second consecutive month, rising to -0.6% from the 1.2% decline in June. This is half the three month average rate and significantly above the record low level of -1.9% seen in May this year. Upward pressure was exerted by the Convenience Food category which reported an acceleration in its inflation rate. Meat and Fish reported sharp decelerations in their   deflation rates. This outweighed slowing inflation in the fruit category and the Oils and Fats category returning to deflationary territory after reporting annual inflation in June.

On a month-on-month basis, prices fell 0.1% from the 0.6% rise in June.

Ambient Food

Inflation in Ambient food rose further in July, to 1.2% from 0.6% in June. This is the highest rate since January 2014 and significantly above the six and 12-month averages of 0.5% and 0.4% respectively. Upward pressure was applied by the Breads and Cereals and Alcoholic Beverages categories, both of which moved into inflationary territory in July.  Non-Alcoholic Beverages reported annual deflation while the category which contains sugar, jam and chocolate, saw a sharp fall in its inflation rate.

On a month-on-month basis prices fell 0.1% down from a 0.3% rise in June.

BRC-Nielsen Shop Price Index: Food

Non-Food

Non-Food deflation accelerated in July to 2.3% from 1.9% in June. Deflation in the Furniture and Floorcoverings and Clothing and Footwear categories accelerated to 2.7% and 4.9% respectively. Books, Stationery and Home Entertainment also reported a notable fall in its deflation rate, falling to the record low rate of 5.5%. The Electricals and DIY, Gardening and Hardware categories reported a deceleration in their deflation rates.

On a month-on-month basis prices were 1.2% lower than a year earlier after being broadly flat in June. This is the largest monthly fall since January 2014.

Year-on-year changes in non-food by sector

Clothing & Footwear

In July, deflation in the Clothing and Footwear category accelerated to 4.9% after a sharp drop in June when deflation reached its lowest rate for over two years. Five out of six sub categories reported an acceleration in their deflation rates, three of which remain above the overall clothing and footwear rate (Women’s and Children’s Clothing and Accessories). Babywear remained the only category to report annual inflation although saw a significant easing of its rate. 

On a month-on-month basis prices fell by 2.0% from a 0.7% decline in June.

Furniture & Floorcovering

The Furniture and Floorcoverings category saw its deflation rate accelerate to -2.7% from 1.6% in June. This was the lowest deflation rate since December 2014. The Furniture, Furnishings and Carpets category reported a sharp acceleration in its deflation rate, which is now deeper than the overall category rate. Retailers are capitalising on the renewed strength of the housing market, driving consumers into shops with a range of discounts and promotions. Data released by the Bank of England at the end of July showed that mortgage approvals rose to 66,582 in June, above the six month average of 62,971. Retailers will be encouraged by these numbers and hope that this trend continues in the coming months.

Prices fell 3.5% on a month-on-month basis after a 0.5% rise in June.

Electricals

Deflation in the Electricals category continued to ease, for the sixth consecutive month. Deflation is now 4.1% down from 5.0% in June and the highest it has been for 13 months. The Audio and Visual Equipment category experienced a deceleration in its deflation rate which outweighed a very small decline in the Household Appliances category. While the GfK’s ‘climate for major purchases’ index decreased by five points to 11, it remains 14 points higher than July 2014.

On a month-on-month basis prices fell for the third consecutive month, down by 0.3% from a 0.4% decline in June.

DIY, Gardening and Hardware

The DIY, gardening and hardware category reported a deceleration in its deflation rate, slowing to 1.9% from 2.3% in June. The Tools and Equipment for the House and Garden and Glass, Tableware and Household Utensils categories both experienced a deceleration in their deflation rates.

On a month-on-month basis prices rose 0.2% from a 0.2% fall in June.

Books, Stationery and Home Entertainment

In July, the Books, Stationery and Home Entertainment reported a sharp acceleration in its deflation rate, accelerating to 5.5% from 5.1% in June. The books and newspaper category reported an acceleration in its deflation rate. The Stationery and Home entertainment categories reported a slight acceleration in their inflation rates.

On a month-on-month basis prices fell 0.2% from the 0.1% rise in June.

Health & Beauty

The Health and Beauty category reported annual inflation of 1.6%, down from the 1.8% rise in June.  This reversed the recent trend which saw inflation rise for three consecutive months. Downward pressure was applied by the toiletries and cosmetics category which reported a sharp deceleration in its inflation rate. This outweighed an acceleration in the personal care inflation rate.

On a month-on-month basis, prices fee 0.7% from a 1.0% rise in June.

Other non-food

The Other Non-Food category reported annual deflation of 0.3% down from the 0.3% rise in June.

On a month-on-month basis prices fell 0.6% from a 0.1% decline in June.

Methodology

The SPI is administered by Nielsen, who collate and analyse the data on behalf of the BRC.

The index provides an indicator of the direction of price changes in retail outlets. The BRC launched the Shop Price Index to give an accurate picture of the inflation rate of 500 of the most commonly bought high street products in stores.

As the Index is designed to reflect changes in shop prices, the sampling points chosen are five large urban areas, spread nationally.  Not all sample stores are in city centres; they have been selected to reflect local shopping habits.  Therefore, the sample includes superstores on out-of-town sites, town centre department stores, local parade stores, and shopping centres. In each location, Nielsen collect and process the data for the BRC, visit stores of differing types, e.g. grocery, confectionery, DIY, department stores – including small and large multiples and independents. Data collection is monthly and always in the same stores to maintain consistency.

The items for which prices are collected reflect standard consumer purchasing patterns in terms of branded/own label split and price distribution.  The Index is constructed of seven main sectors of purchase: food, DIY, gardening and hardware, furniture, books, stationery and home entertainment, electrical, clothing and footwear, and other non-food. In total there are 500 items representing the seven main sectors, there are around 6,500-7,000 price points collected each period. Each product class category has an individual weighting based on the “All households” expenditure measured in the Family Expenditure Survey.  This data is also used to weight the Office for National Statistics Retail Price Index (RPI).

Although it is a proxy measure of inflation, the Shop Price Index is more focused than the Retail Price Index, and demonstrates the extent to which retailers contribute to inflation through their pricing of a range of commonly bought goods.

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(C) British Retail Consortium (2015). The contents of this report and those of all ancillary documents and preparatory materials are the sole property of BRC and are not to be copied, modified, published, distributed or commercially exploited other than with the express permission of BRC or for the purposes of journalistic comment and review. All rights reserved.

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