British shop prices are on the verge of returning to inflationary territory for the first time in four years, according to a closely followed index, adding to pressure on households.
Shop prices fell by only 0.1 per cent year-on-year in September, remaining flat compared to August, according to figures from the British Retail Consortium (BRC) published today.
Overall shop prices have declined steadily for the last four years, but a surge in food price inflation this year has left the index “teetering on the edge of inflation”, according to Helen Dickinson, BRC chief executive.
Food prices rose by 2.2 per cent in the year to September, the BRC reported, as the devaluation of sterling since last June’s vote to leave the EU along with global commodity moves have passed through to retailers.
|Shop price inflation (annual)||Shop price inflation (monthly)||Food (annual)||Food (monthly)||Non-food (annual)||Non-food (monthly)|
The gradual return to inflationary pressure in the BRC shop price figures reflects the sharp rise in overall inflation which has squeezed consumers by making products more expensive while wage growth lags behind. Inflation as measured by the Office for National Statistics rose to an annual rate of 2.9 per cent in the year to August.
Separate ONS figures released yesterday showed real household disposable income per head, a measure of how much cash consumers earn after tax, declined by 1.1 per cent year-on-year in the second quarter of 2017.
This was the fourth consecutive quarter that disposable income per head has decreased, marking the longest period of consistent negative growth since the end of 2011, the ONS said.
The squeeze on disposable incomes has harmed Britons’ perceptions of their own financial situation, which fell for the first time in two years in the second quarter, according to the Eurobarometer Consumer Survey.
Bank of England forecasts show the squeeze on British real incomes may be reaching its height. However, the BRC’s Dickinson predicts more inflationary pressure may be on the way: the coming of winter marks the end of the season for some British vegetables grown, which will leave the UK more vulnerable to fluctuations in sterling.
Meanwhile, more non-food retailers will see currency hedges expire in the autumn, meaning imported products could become more expensive in sterling terms.
Richard Lim, chief executive of the Retail Economics consultancy, said: “Food prices shot up in September to their highest level in almost four years as pressures from commodities and the Brexit-induced fall in sterling continue to feed through the supply chain.”
“This will hit the least affluent households the hardest given they spend a much higher proportion of their expenditure on food. The knock-on consequence is for discretionary spending to be squeezed even further in the coming months.”
The rise in prices and the consequent squeeze on the consumer come as operational costs are also on the increase, Lim added.