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Shop price inflation hits its lowest rate for nearly two years

Shop price inflation is at its lowest for nearly two years, falling to 1.2% in February from 1.4% in January, said the British Retail Consortium (BRC).

According to BRC-Nielson Shop Price Index data, the inflation figure has been driven down by non-food deflation of 0.7% - the first annual deflation since November 2009 as retailers continue to promote offers and discounts.

With the Chancellor’s upcoming Budget in mind on March 21, BRC director general Stephen Robertson said: “When shop prices are up by just 1.2% there’s even less justification for the eye-watering 5.6% business rates rise planned for April. Reducing this huge hike in trading costs should be a priority for the Budget.”

Clothing and footwear deflation sped up in February to 5.3% from 4% in January. The recent news that India has banned exports of cotton will push commodity prices up but the BRC does not believe this will translate to higher prices in shops.

Earlier this week India put a ban on the export of cotton sparking fears of inflation in the cost of the raw material. Following the ban, cotton prices crept up 4% and shares in clothing retailers dipped across the board.

Additionally according to the BRC, supermarkets cannot sustain the discounts and offers on products which have been in place since October, while they are also facing increasing distribution costs. Commodity prices have also begun to creep up since the start of 2012.

Nielsen senior manager of retailer services Mike Watkins explained: “The recent rise in oil prices and past rises in commodity prices had an impact on food inflation but non-food shop prices are falling, which reflects consumers’ unwillingness to spend as well as the year-ago increase in VAT coming out of the comparatives.”

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