Wednesday 2 November 2016 1:00 am

Shop prices continued to fall in October, despite the slide in the value of sterling

Sterling's sharp decline since the EU referendum has not fed into shop prices yet, according to data released today.

Shop prices fell by 1.7 per cent month-on-month in October, according to the British Retail Consortium (BRC) and Nielsen.

Prices on non-food items fell by 2.1 per cent and food prices fell by 1.2 per cent, indicating that consumers have so far been shielded from any sterling-related price changes. The BRC said it expects deflation will move towards zero at the end of the year.

Richard Lim, chief executive of consultancy Retail Economics, said:

Consumers will be relieved to see that shop prices remain deflationary despite the anguish caused by Marmite Wars.

Many retailers will have hedged against the post-referendum fall in sterling which will cushion most of the inflationary pressure felt this side of Christmas. But as these contracts begin to unwind, retailers will be forced to pass on at least some of these import pressures to shoppers. 

He said inflation could hit three per cent next year.

Mike Watkins, head of retailer and business insight at Nielsen, said "competition for the wallet of the shopper continues to be intense".

"Fresh food is a key battleground for attracting new shoppers and there have been further price cuts in recent months," Watkins said. "Across the non-food channel is it unseasonably warm weather that is having the biggest impact on sales so retailers are holding prices and making promotions attractive to help encourage visits to store."

Helen Dickinson, chief executive of the British Retail Consortium, said: "Shop price deflation continues unabated.

"While we know that the devaluation of sterling since the Brexit vote is stoking inflationary pressures, the good news for consumers is that retailers have been successful in managing this to date and there is still no impact visible in shop prices." 

Dickinson said she expects inflation to set in during the first quarter of 2017, however.