Overall shop prices reported annual deflation for the seventh consecutive month in November, slowing to 0.3% from the 0.5% decline reported in October, according to the BRC-Nielsen November Shop Price Index.
Food inflation slowed to 2.3% in November from 2.7% in October. Non-food reported annual deflation of 2.0% in November from 2.4% in October.
Helen Dickinson, British Retail Consortium director general, said: “The seventh consecutive month of deflation is great news for hard-pressed households as Christmas gets closer, and confirms that retailers are reading current conditions well and matching the mood in their promotions and product offers.
“Food inflation fell to its second lowest level since June 2010, driven mainly by fresh produce, which indicates that there are plenty of good deals to be had as customers start stocking up on seasonal fare. A better global harvest has led to lower commodity prices, particularly for oil, and with few signs of volatility in the system at present I would expect levels to remain fairly stable in the coming months.
“Non-food has been deflationary since March, and November continued the trend, mainly fuelled by promotions in fashion, furniture and electricals. In areas where deflation slowed, it was mainly due to a natural levelling off of some of the early-bird Christmas offers, especially in the books category following ‘Super Thursday’.
“There are some encouraging signs in here for anyone starting to make some headway on their Christmas lists.”
Mike Watkins, head of retailer and business Insight, Nielsen, said: “Across most of the industry it’s been a slower than usual start to Christmas trading and we expect retailers to keep promoting to help drive footfall. The good news for consumers is that inflationary pressures are less prevalent this year than in previous years. So with sales momentum now starting to build, we anticipate some good festive deals for the savvy Christmas shopper.”
Food inflation fell for the second consecutive month and, to its second lowest level since June 2010, as fresh food reported a sharp deceleration in its inflation rate. This was driven by six of the seven sub-categories reporting a slowing in their rates, particularly convenience food and fruit, with the latter moving into deflationary territory. There was very little movement in the ambient food category with the inflation rate remaining unchanged at 2.4%. The latest input price for home produced food, measured by the ONS Producer Price Index, fell to -2.0% in October, its lowest level since April 2009. This suggests that retailers are facing little pressure from their UK suppliers.
The non-food category has reported annual deflation in 22 of the last 23 months and remains significantly down on a year ago. A number of categories remained deflationary as retailers use discounts and promotions to drive sales at the expense of their margins. The average deflation rate in the year to November is 1.4 per cent, considerably higher than the 0.3% decline in the comparable period a year ago. The increased level of discounting has been particularly evident in the clothing and footwear category where deflation has been above 10 per cent for two consecutive months.
The Thomson Reuters Jefferies-CRB index, a weighted commodities benchmark, has fallen by eight per cent since the start of the year and four per cent since the end of October’s survey period.
Commodity prices have remained low and stable, driven by better global harvests this year. This is demonstrated in the table below with four key commodities reporting double-digit declines.
The United States Department for Agriculture (USDA) forecasts world wheat production in 2013/2014 down 2.5 million to 706.4 million tons from last month’s forecast. The largest change in production came from Russia which cut its projected wheat production and delayed planting due to abnormally cold weather and an excessively wet September and start to October. Records indicate that September 2013 in the Central Belt of Russia had the highest precipitation rate since 1885. It is estimated that 4.4% of the planting area for wheat has been categorised as damaged.
The official measure of inflation, the Consumer Price Index (CPI), fell sharply to 2.2% in October from 2.7% in September, the lowest rate since September 2012, and has not been lower since November 2009. This was driven by a significant fall in transport prices which recorded their biggest drop in over four years. One of the main drivers was competition on the forecourts at many major supermarkets pushing petrol prices lower. Education costs also levelled off.
The latest Inflation report from the Bank of England said that the recovery had “finally taken hold”. The Bank upgraded its forecasts for economic growth and unemployment as well as lowering its outlook for inflation compared with its forecasts three months earlier. Near-term inflation in particular is due to be lower before remaining around, or slightly lower than, its two per cent target rate.
At -0.3% the Shop Price Index remains significantly below the official rate of inflation, the CPI. The retail sector continues to support hard-pressed consumers whose real disposable incomes are still being squeezed. The latest data from the Office for National Statistics showed wages grew at just 0.8%, significantly lagging behind inflation.
Barring any shocks to the supply chain, shop prices are expected to remain fairly stable in the medium term.