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Shop price inflation slipped to its lowest level in more than three years this month, research shows.
Over the year to October, shop prices contracted by 0.8 per cent, steeper than September’s annual fall of 0.6 per cent, according to the British Retail Consortium (BRC) and NielsenIQ, a research consultancy. It is the weakest inflation figure since August 2021.
On a monthly basis, shop prices inched up by 0.1 per cent, after a 0.2 per cent fall in September. Food inflation fell to 1.9 per cent annually, the lowest rate since November 2021 and down from 2.3 per cent in September. Non-food prices fell by 2.1 per cent over the year, unchanged from the previous month.
The decline indicates that the official inflation measure could stay below the Bank of England’s 2 per cent target. The BRC shop price index is published ahead of the official inflation estimate and is used by analysts to predict the official rate, which fell to 1.7 per cent in September from 2.2 per cent in August. Services and core inflation dropped to 4.9 per cent and 3.2 per cent respectively last month.
Forecasts for a series of interest rate cuts by the Bank of England have gathered momentum as price pressures have stabilised. Markets think the central bank will loosen policy at its November and December meetings from the current level of 5 per cent.
Helen Dickinson, chief executive of the BRC, said: “Households will welcome the continued easing of price inflation, but this downward trajectory is vulnerable to ongoing geopolitical tensions, the impact of climate change on food supplies, and costs from planned and trailed government regulation.”
She urged Rachel Reeves, the chancellor, to reform the business rates regime in the budget on Wednesday to lower costs for bricks-and-mortar retailers.
There was concern that an escalation in tensions between Israel and Iran could disrupt global oil supplies, pushing up production costs. However, the price of Brent crude and WTI, the two international benchmarks, fell sharply by around 5 per cent on Monday after Israel avoided hitting Iranian oil infrastructure over the weekend in a retaliatory strike following the volley of Iranian missiles fired into Israel.
Food inflation climbed to a peak of nearly 20 per cent in March 2023, driven upwards by retailers lifting prices to offset higher energy and wage costs.
In the non-food category, retailers discounted DIY products to capitalise on rising activity in the housing market, the BRC said.
Dickinson added: “With fashion sales finally turning a corner this autumn, prices edged up slightly for the first time since January as retailers started to unwind the heavy discounting seen over the past year.”
Consumer spending in the UK has struggled to get going since the Covid-19 pandemic, caused by higher saving rates and steeper bills for basic necessities like food and energy. According to the Office for National Statistics, retail sales are still below their pre-pandemic levels.
Analysts said that retailers may need to offer attractive discounts to draw in demand from more cost-conscious consumers.
Mike Watkins, head of retailer and business insight at NielsenIQ, said: “Consumers remain uncertain about when and where to spend and with Christmas promotions now kicking in, competition for discretionary spend will intensify in both food and non-food retailing.”