UK shop price inflation falls sharply to lowest level in two years

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UK shop price inflation fell sharply in January to its lowest rate in almost two years as retailers heavily discounted products during a period of weak sales, industry data shows.

The British Retail Consortium said on Tuesday that annual selling price inflation fell to 2.9% in January, down from 4.3% in December. This is the seventh consecutive monthly decline and the lowest rate since May 2022.

The BRC Output Price Index, which provides an early indication of price pressures ahead of the release of official data on February 14, will raise hopes that underlying inflationary pressures will continue to ease despite the headline measure rising to 4% in December .

The drop in store inflation is due to retailers offering “heavily discounted products in January sales to entice consumer spending amid weak demand,” BRC Chief Executive Helen Dickinson said.

Despite the increase from 3.9% in November, December’s inflation rate was still well below the multi-decade high of 11.1% reached in October 2022.

Markets were pricing in the Bank of England to hold its benchmark interest rate at a 15-year high of 5.25% on Thursday, but to start cutting rates in June as inflation is expected to slow towards BoE’s 2% target.

Line chart of annual percentage change in the Consumer Price Index shows annual selling price inflation in the UK, which fell to 2.9% in January

He noted that the price of milk and tea also fell in January compared to the previous month, while rising taxes on alcohol kept the cost of drinks high.

Non-food prices fell 1.4% month-on-month, resulting in an overall annual decline across all categories, the BRC said. Annual non-food inflation fell to 1.3% in January from 3.1% the previous month, marking the lowest rate since February 2022.

Mike Watkins, head of Retail and Business Insight at NielsenIQ, who helped compile the data, said: “Shoppers are seeing savings at the checkout with non-food retailers on promotions and food retailers continuing to reduce prices when goods costs decrease. “

Annual food inflation also fell to 6.1% in January, from 6.7% in December, falling well below its peak of 15.7% in April 2023, BRC data showed.

Both fresh and ambient food prices have seen a decline in annual growth rate. The former fell from 5.4% to 4.9%, while the latter – which refers to items that can be stored at room temperature – fell from 8.4% to 7.7%.

BRC data suggests official food price inflation will continue to slow after falling to 8% in December, down from a 45-year high of 19.1% in March. Food and energy prices have risen over the past two years after Russia invaded Ukraine in early 2022, hitting poorer families hardest.

Despite the sharp slowdown in price growth, the BRC warned of risks to the outlook, such as new cost pressures arising from rising interest rates and increases in the national minimum wage from April and unrest in the Sea Red.

“Growing geopolitical tensions will also increase uncertainty and costs in supply chains,” Dickinson said.

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