Shop prices fall in May but grocery inflation gathers pace

Overall shop prices deflated 0.4% in May year-on-year, according to the latest figures from the British Retail Consortium (BRC) and Nielsen.

This is a slighter drop than the 0.5% deflation registered in April, and the shallowest rate of deflation since November 2013.

Food prices

The trends for inflation in food and non-food are “now two quite different stories,” said BRC chief executive Helen Dickinson.

Food inflation accelerated to 1.4% in May year-on-year, up from the 0.9% rise in April.

Dickinson said: “With shorter stock turnaround times, the impact of the weaker pound has already started feeding through into food prices; although food price inflation this month is still well below the input cost price increases being faced by retailers.”

Fresh food inflation was 1.2%, up from 1.0% in April and ambient food inflation was 1.8% in May, up from 0.8% in April.

Nielsen head of retailer and business insight Mike Watkins said food inflation is currently impacting ambient foods more than fresh, “as the impact of currency change moves through the supply chain, but still remains lower than the increase in the consumer price index”.

“Consumer expenditure on food and drink has held up well so far this year with shoppers visiting supermarkets more often to seek out savings and to find the best value for money, strategies which are helping shoppers to manage changes in their household budget,” he said.

Non-food

Non-food deflation deepened slightly with prices falling 1.5% over the year to May, compared with the 1.4% decline in April.

Excluding last month this is the shallowest deflation rate since May 2013.

Dickinson said: “Heavy discounting in the wake of a weak start to the year and the fact that some businesses are still protected by hedging contracts are keeping non-food prices deflationary for now.”

Outlook

Dickinson warned that the general trend of upward inflation is expected to continue over the course of the year. 

This will “squeeze disposable income at a time when wage growth is slowing”, she said. 

“In terms of our imports of retail goods into the UK, three quarters of our imported food comes from the EU.

”So to protect consumer food bills from the additional cost of unwanted new tariffs, a continuation of tariff-free trade with the EU must be the priority in the forthcoming Brexit negotiations,” she said.