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Shop prices hit 3-year low, but "inflation outlook remains delicate"

Journalist: John Choong (Head of Markets and Research), Newspage

ended 01. October 2024

Shop prices are now at their lowest levels in 3 years, according to the latest report by the British Retail Consortium (BRC). Overall shop price inflation was at -0.6% in September, down from -0.3% in August, and below the 3-month average of -0.3%.

Non-food inflation continued to drop to -2.1% from -1.5%. However, food inflation rose to 2.3% from 2.0%, thanks to a jump in fresh food inflation, which saw its inflation rate increase to 1.5% from 1.0%.

BRC Chief Executive Helen Dickinson said: “September was a good month for bargain hunters as big discounts and fierce competition pushed shop prices further into deflation. Easing price inflation will certainly be welcomed by consumers, but ongoing geopolitical tensions, climate change and government-imposed regulatory costs could all reverse this trend."

A graph showing annual growth rate

Newspage asked experts for their thoughts on what this data spells for the cost-of-living crisis, the outlook for the retail sector, and for overall inflation moving forward.

4 responses from the Newspage community

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Editor
Wes Wilkes
CEO at IronMarket Wealth
In the fight against rising costs, this will feel like a points win for the consumer after a heavy 2-year bout. For the Bank of England, however, they risk getting behind on points here, as growth slows and inflation recedes. The MPC may require a knock out punch down the line, unless they move to act by cutting interest rates at their next meeting.
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Editor
Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
UK shop prices have plummeted to their lowest level in three years, offering a lifeline to cash-strapped consumers amid the cost-of-living crisis. This latest data reveals a sustained downward price trend, with a significant decrease exceeding the three-month average.

Nonetheless, ongoing economic uncertainty continues to shape consumer behaviour, with most reporting changes in their spending habits due to budget pressures. This deflationary trend in prices presents an intriguing challenge for the BoE due to the divergence between food and non-food inflation rates. The downward trend in non-food items suggests that consumer demand may be softening, which could support arguments for reducing rates. However, the uptick in food inflation complicates this picture, with the MPC hyper-vigilant for any signs of inflationary pressure.
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Justin Moy
Managing Director at EHF Mortgages
Assuming these major falls in inflationary pressures ring true, then overall inflation should follow suit, which will be a much-welcome relief for mortgage borrowers as the cost of borrowing will continue to fall. The base rate will be ripe for a cut before Christmas, easing the financial pressure on many borrowers and business owners looking for confidence in their finances.
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John Choong
Head of Equities and Markets at Interpretiv
The decline in overall shop prices will be encouraging for consumers, with non-food prices dropping by 2.1% from a year ago serving as a boon for consumers and easing some cost-of-living pressures. However, this doesn't necessarily spell the end of inflation, as the rise in food inflation, albeit slightly, may signal potential challenges ahead.

The 1.5% increase in fresh food inflation was likely down to two main themes. The first could be an early indicator of rising input costs, particularly energy, as grocers have likely increased margins in preparation for the higher energy price cap this winter. The second is an increase in the spot prices of key commodities such as wheat, milk, and corn, going into September.

As such, the inflation outlook remains delicate. Historically, inflation expectations have closely tracked food inflation. Therefore, a sustained rise in food inflation in the months ahead could risk de-anchoring the progress made thus far.