Deflation hits UK retail for the first time in three years as fresh food inflation eases

27 Aug 2024 --- Shop prices in the UK have entered deflation for the first time in nearly three years, according to figures released by the British Retail Consortium (BRC), a trade association for the region’s retail.

Retail prices dropped by 0.3% in August 2024, down from an inflation of 0.2% in July.

Helen Dickinson, chief executive of the BRC, says: “Shop prices fell into deflation for the first time in nearly three years. This was driven by non-food deflation, with retailers discounting heavily to shift their summer stock, particularly for fashion and household goods.”

“This discounting followed a difficult summer of trading caused by poor weather and the continued cost-of-living crunch impacting many families.”

Deflation in food and non-food categories

Food inflation slowed to 2.0% in August, down from 2.3% in July. The BRC notes that this rate is below the three-month average of 2%. The annual rate continues to slow down in this category, and inflation has been at its lowest since November 2021.

Fresh food, which includes fruits, vegetables and meat, recorded a further slowdown in August, to 1.0%, down from 1.4% in July. Similar to the larger food category, this rate is below the three-month average of 1.3%.

“Food inflation eased with fresh food prices, especially fruit, meat and fish, seeing the biggest monthly decrease since December 2020 as supplier input costs lessened,” adds Dickinson.

Non-food items drove the deflation, recording a rate of -1.5% in August, showing a decline from -0.9% in the previous month. This is below the 3-month average rate of -1.1%. Inflation is at its lowest rate since July 2021.

Ambient foods, which can be stored at room temperature, recorded a deceleration in August.Ambient foods, which can be stored at room temperature, recorded a deceleration, going down to 3.4% in August, down from 3.6% in July.

Dickinson warns that while some categories have recorded a price slowdown, the global environmental crisis could pose challenges ahead.

“Retailers will continue to work hard to keep prices down, and households will be happy to see that prices of some goods have fallen into deflation. The outlook for commodity prices remains uncertain due to the impact of climate change on harvests domestically and globally, as well as rising geopolitical tensions. As a result, we could see renewed inflationary pressures over the next year.”

Mike Watkins, head of retailer and business insight at NielsenIQ, which collects the data for BRC, says:

“Shop price inflation has fallen again in August as many non-food retailers have kept promotional support due to the unpredictable weather, and food retailers have introduced more price cuts to help drive incremental sales during the ‘summer of sport.’”

Earlier this month, the Office for National Statistics noted that the UK food and non-alcoholic beverage inflation remained steady at 1.5% in July, the same as the previous month and the joint lowest annual rate since October 2021, according to official figures. However, products like olive oil, cocoa and powdered chocolate still recorded steep price increases.

Retail constitutes 5% of the UK’s GDP. With over 3 million individuals employed directly and over 2.7 million in the supply chain, the sector is the largest private employer.

The industry makes up 5% of the UK GDP and is the largest private sector employer, providing 3 million direct jobs and 2.7 million more in the supply chain.