Together with falling energy costs, lower prices in the UK’s shops would put more downward pressure on inflation. As a consequence, real wages are expected to rise further, and the Bank of England could be tempted to defer any rate rise.
Overall shop prices were 1.7 per cent lower last month than in December 2013, the British Retail Consortium (BRC) will reveal today. Food prices were up by 0.1 per cent year-on-year, yet non-food sales were down by 2.8 per cent.
“This significant run of deflation isn’t all bad news for retailers,” said the BRC’s Helen Dickinson. “The producers’ price index, which tracks the cost of raw materials to producers, is deflationary [too], so retail business have seen significant decreases in their own input costs. However, fierce competition has seen these savings passed on directly to consumers. It’s a win-win scenario that many are predicting will continue long into 2015.”