Shop prices little moved as retailers absorb sterling inflation, BRC-Nielsen says

Prices of goods in UK shops continued to fall in October, according to a survey of the retail industry published on Wednesday, as supermarkets absorb most of the early effects of the falling pound.

Overall shop prices deflation eased very slightly to 1.7% in October from 1.8% in September, the BRC-Nielsen shop price indicator revealed.

Food deflation was the main cause of the deceleration, moving to 1.2% in October from 1.3% in September, with fresh food prices 2.0% lower than a year ago and ambient prices just 0.2% lower.

Non-food deflation remained unchanged at 2.1% for a second month.

But the British Retail Consortium said shop price deflation was likely to move closer to zero at the turn of the year and could even move into inflationary territory at some point during the first half of 2017.

“While we know that the devaluation of sterling since the Brexit vote is stoking inflationary pressures, the good news for consumers is that retailers have been successful in managing this to date and there is still no impact visible in shop prices," said BRC chief executive Helen Dickinson.

"However, it is inevitable that imported inflation will begin to make its mark and we would expect to start to see this effect coming through in the first quarter of 2017.”

Mike Watkins, Nielsen's head of retailer and business insight, said supermarkets were keeping prices low and not yet passing inflationary pressure in the supply chain as competition was so intense.

Fresh food is a key battle ground for attracting new shoppers and there have further price cuts in recent months.

"Across the non-food channel it is unseasonably warm weather that is having the biggest impact on sales so retailers are holding prices and making promotions attractive to help encourage visits to store," he said.