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Better times for the consumer as shop prices fall?

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Consumers can breathe a short-term sigh of relief, as shop prices fall at a faster rate, but pressures are expected to re-emerge towards the end of this year.

Overall shop price deflation was 0.4%, a slight increase in deflation from the 0.3% June figure.

The decrease was driven by falling food inflation, which slowed to 1.2%, from 1.4% in both June and May.

Helen Dickinson, chief executive of the British Retail Consortium attributed the decline to the weakening effects of sterling depreciation. She said: “Shorter stock cycles in fresh food mean that more of the impact of the currency depreciation fed through into inflation earlier in the year and hence it is now subsiding. However, the upward pressure on food inflation has not entirely disappeared. Ambient (shelf-stable) food prices are still affected and as seasonal pricing dynamics play out, we could see fresh food inflation pick up again.”

Non-food prices decreased by 1.5% in July, compared to the June decrease of 1.4%. Dickinson said: “While in many cases retailers’ new ranges are coming in at higher price points in response to the increased cost of importing goods, other core products are seeing reductions in prices, as retailers compete to keep prices low for consumers where they can. For now, these dynamics are keeping overall non-food inflation low, although strong upward pressures remain.” She believes these falling prices will start to reverse in the latter part of the year.

Mike Watkins, head of retailer and business insight, Nielsen, said: “The amount of inflationary pressure coming from retail remains less than from other elements of the economy and in the last few weeks, while we have seen a return to more normal weather, the level of consumer demand remains unpredictable. This means retailers are cautious about passing on price increases, in particular at key retail price points. So promotional activity is still an important stimulant of demand as consumers become more cautious in the face of higher living costs.”

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