Retailers under pressure as food deflation continues apace, says Nielsen

Shop prices fell in June with further deflation of 2%, with food prices falling by 0.8% compared to a 0.3% decline in May, according to the latest BRC/Nielsen shop index, published today.

The 0.8% decline was the deepest deflation in food prices for over a year, while fresh food deflation fell to 1.5% from 0.8% in May, the fastest decline since September 2015. Ambient food inflation decelerated to 0.1% in June from 0.4% in May.

The deflationary environment was creating an “added pressure” for retailers, said Mike Watkins, Nielsen’s head of retailer and business insight. “Whilst changes in the economic landscape are anticipated next year, the current focus for the industry is the continued deflationary environment. This is good news for shoppers who benefit from falling prices but is added pressure for retailers as they balance increased costs from the National Living Wage and investment in multi-channel, with volatile consumer demand.

“A return to inflation is not expected just yet so it`s business as usual over the summer months and encouraging shoppers to keep spending is the priority.” In store prices would eventually rise again, British Retail Consortium  chief executive Helen Dickinson said.

“However, the time it takes for any price increases to make a re-appearance will depend on a combination of factors including the future value of the pound, commodity prices and any eventual impact of last week’s Brexit vote on input costs,” she added.

“That said, there won’t be any instant shocks as any changes will take time to feed through. Continuing fierce competition also means that putting up prices may not be viable for some retailers.”

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