Consumers are continuing to benefit from falling shop prices, reports the BRC-Nielsen Shop Price Index for August, which found that overall shop prices reported deflation of 2%, from the 1.6% decline in July. Non-food deflation accelerated to 2.5% in August, from 2.2%.
Deflation in the Furniture and Floorcoverings category accelerated sharply to 2% in August, from 0.8% in the previous month. This is deeper than the three-month average of -1.8%.
The latest data on housing market activity continues to be mixed. The Nationwide House Price Index reported a 5.6% rise year-on-year in August, although this was at odds with both supply and demand, which was fairly weak. The latest data from the Bank of England on mortgage approvals showed they fell to an 18-month low.
Helen Dickinson OBE, BRC chief executive, comments: “Shop prices continued their record run in deflationary territory. Lower prices this August compared to last were driven by a combination of continuing promotional activity, softening oil prices and a global supply glut of wheat weighing on food prices.
“The devaluation of sterling in wake of the referendum will put upward pressure on shop prices. But that’s likely to take several months to properly feed through, given that retailers won’t feel the brunt of the cost increases until existing contracts with foreign suppliers come to an end. Even then, retailers will have to make a decision about when and how much to pass on to consumers.
"Given the strength of competition in the market, and if the economy softens in line with predictions, any pass-through may be more limited than implied by the exchange rate movement. As far as they can, retailers will endeavour to mitigate impacts by looking for productivity gains in their own businesses, rather than compromising on the value they are offering to consumers.”
