Non-food prices fell at their fastest rate since January 2017, declining 2.1% year on year, compared to 1.1% in November, as retailers stepped up promotional activity to ‘stimulate spending’.
Shop prices slid deeper into deflationary territory in December, falling 0.6% on last year compared to the 0.1% decline in November. According to the British Retail Consortium (BRC), this is the deepest deflation since March 2017.
As consumers benefited from discounting across non-food categories ahead of Christmas, they were hit by rising costs in other categories, as food inflation gathered steam, increasing to 1.8% in December, up from 1.5% in November.
Nielsen head of retailer and business insight Mike Watkins said: “The SPI inflation rate is below other inflationary measures, showing there is little inflationary pressure coming from retailers. With consumer confidence wavering and unpredictable levels of demand, many non-food retailers have been keeping prices low to stimulate spending, which will undoubtedly have come at a cost to margins.”
Debenhams has, this week, posted a surprise profit warning that could result in job losses, as it reported disappointing Christmas sales. Having taken, “tactical promotional action” to try and deliver an improved performance during the festive period, the retailer added that the current UK trading environment was “volatile and highly competitive”.
Debenhams chief executive Sergio Bucher said: “The market has been challenging and particularly promotional in some of our key seasonal categories and we have responded in order to remain competitive for our customers, which has impacted our profit performance.”
BRC chief executive Helen Dickinson said the promotional activity and discounting undertaken by retailers was good news for shoppers: “After several months of shop prices teetering on the edge of inflation, December saw them retreat deeper into deflationary territory. Prices in December fell at the fastest rate since March this year when only last month we saw the shallowest rate of deflation for four years.
“This is good news for shoppers. Retailers offered lower prices at the beginning of December than last year on many of their non-food ranges, providing welcome options for Christmas shoppers on a stretched budget. These discounts allowed consumers some much needed breathing room during the festive period at a time when the cost of their food shop is on the rise.
“Food inflation picked-up pace this month, fuelled by climbing global food prices earlier in the year. While retailers will continue to do their best to absorb cost increases for their customers, the challenges to the industry remain stark with more inflationary pressures in the pipeline.
“Therefore, this year we will continue to press the Government for clarity on the principles and terms around the Brexit transitional arrangements, to ensure businesses have the certainty to plan and invest and that consumers don’t face higher costs or delays from tariffs or onerous customs barriers.”
Whilst food prices have edged up a little due to supply chain increases in fresh and seasonal foods, pricing across Supermarkets will remain competitive as we start 2018 with consumers still coping with higher household bills.”