August marks the first time in nearly three years that shop prices have entered deflation.
- Shop prices decreased to a rate of 0.3% this August, a notable shift from last month’s inflation of 0.2%.
- A significant driver of this deflation is attributed to non-food items, which experienced a decrease of 1.5% compared to the previous month.
- Food inflation has seen a reduction, falling to 2.0% from July’s 2.3%, hitting its lowest since November 2021.
- Retailers have heavily discounted summer stock due to challenging trading conditions exacerbated by poor weather and economic pressures.
The British Retail Consortium (BRC) and NielsenIQ data indicate a pivotal shift in retail economics as shop prices fall into deflation, registering a decrease to 0.3% from a prior 0.2% inflation in July. This marks the first instance in nearly three years that shop prices have entered a deflationary phase, reflecting profound changes in consumer pricing and market strategies.
The deflationary trend is largely influenced by a significant reduction in non-food prices, which fell by 1.5% in August, down from the previous month’s 0.9%. This movement is below the three-month average of -1.1%, highlighting a broader market adaptation to excess inventory and diminished consumer spending. The retail sector, particularly in fashion and household goods, has resorted to aggressive discounting strategies to clear out summer stocks, a necessity prompted by suboptimal weather conditions and ongoing financial constraints faced by consumers.
Food inflation has also demonstrated a downward trajectory, with rates decreasing to 2.0% in August from 2.3% in July. This represents the lowest food inflation rate since November 2021, suggesting a moderating trend in the overall consumer price index for essential goods. Retailers have responded to the economic backdrop with strategic pricing adjustments to maintain sales momentum amidst tightening consumer budgets.
Helen Dickinson, CEO of the BRC, commented on the developments, noting the dual pressures of challenging summer trading conditions due to poor weather and the persistent cost of living impact on household spending behaviors. She flagged the potential for future inflationary pressures, contingent on unpredictable variables such as climate change impacts on agricultural yields and geopolitical tensions affecting global supply chains.
Mike Watkins, head of retailer and business insight at NielsenIQ, added context to the changes observed, emphasizing the role of promotions in non-food segments and ongoing price reductions in the food sector as key mechanisms to sustain consumer engagement and offset economic volatility. Retailers’ adaptations to the dynamic market environment are critical as they navigate the ‘summer of sport’ and other seasonal influences.
The substantial discounts and complex economic factors are reshaping retail pricing strategies, marking a significant deflationary period in the sector.
