Food deflation hits new high

Food prices slumped by 0.5% in January - the steepest decline since records began in December 2006.

New figures released today by the BRC Nielsen Shop Price Index also showed that overall shop prices had declined during the month to -1.3%.

Overall food inflation has now averaged just 0.4% in the last 12-months.

The BRC said the sharp decline was driven by fresh food, which also reached a new record low in January, falling 1.0% and outweighing a marginal rise of 0.1% in the ambient food category.

The prices of the majority of the agricultural commodities that are followed consistently fell last year and this trend continued into 2015, with some exceptions. The Bloomberg Commodity Index, which tracks the prices of 22 commodities, fell 0.3 percentage points last week to 99.84, the lowest point since August 2002.

Mike Watkins, head of retailer and business insight, Nielsen, said: “Over the past six months we have seen food inflation falling and, as we start 2015, we now have food deflation. Whilst falling prices are of course welcomed by shoppers, the impact is that there is only marginal value sales growth across the industry.

With further price cutting expected by the major supermarkets, the near-term outlook is for the continuation of a low-growth trading environment. Deflation also continues in clothing and electrical, with non-food retailers still able to pass on the benefit of falling supply chain costs to the consumer.”

BRC director general Helen Dickinson said: “Deflation doesn’t always translate into bad news for retailers. The Producers Price Index (which tracks the cost of raw materials to producers) remains deflationary, so retail businesses will continue to see decreases in their own input costs for the foreseeable future. To remain competitive, retailers will continue passing these savings on to the consumer. 2015 is shaping up to be a win-win year for shoppers and retailers alike.” 

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