Ever since the Chancellors tax rises came into effect in April, food price growth has accelerated month-on-month, in tandem with (minimum) wage growth. The surge in food prices poses a significant concern, as they impact all individuals, putting even more pressure on disposable income and potentially trigger a wage-price spiral. Wage-price spirals occur as higher wages are demanded to cove weekly shopping expenses.
According to the British Retail Consortium (BRC), shop price inflation has increased to 0.9% year on year in August, against growth of 0.7% in July. This is above the 3 month average of 0.6%. Non-Food inflation increased to -0.8% year on year in August, against a decline of -1.0% in July. This is above the 3-month average of -1.0%.
Compiled by NIQ on behalf BRC, the Shop Price Monitor (SPM) provides a comprehensive analysis of price changes for 500 of the most frequently purchased items, across all food and non-food categories online and in store. Although it is a proxy measure of inflation, the SPM demonstrates the extent to which retailers contribute to inflation through the pricing of commonly bought goods.
Food inflation increased to 4.2% year on year in August, against growth of 4.0% in July. This is above the 3-month average of 3.9%. Fresh Food inflation increased to 4.1% year on year in August, against growth of 3.2% in July. This is above the 3-month average of 3.5%. Ambient Food inflation decreased to 4.2% year on year in August, against growth of 5.1% in July. This is below the 3-month average of 4.5%.
Mike Watkins, Head of Retailer and Business Insight, NIQ, explained that the price increases reflect several factors, such as global supply costs, seasonal food inflation driven by weather conditions, the conclusion of promotional activity linked to recent sporting events, and a rise in underlying operational costs. “As shoppers return from their summer holidays, many may need to reassess household budgets in response to rising household bills,” added Watkins.
Helen Dickinson, Chief Executive of the BRC, said: “Shop price inflation hit its highest rate since March last year, fuelled by food price rises. This adds pressure to families already grappling with the cost of living. Staples such as butter and eggs saw significant increases due to high demand, tightening supply, and increased labour costs. Chocolate also got more expensive as global prices of cocoa remain high owing to poor harvests. There was some respite for parents ahead of the new academic year, with lower prices for clothing, books, stationery, and computing.
“Retailers continue doing everything they can to limit price rises for households, but as the Bank of England acknowledged, the £7 billion in new costs flowing through from last year’s Budget has created an uphill battle for retailers. That is why over 60 retail CEOs recently wrote to the Chancellor with a call to ensure there are no further taxes rises on retail this Autumn. The planned business rates reforms present an opportunity to deliver a meaningful reduction in retail, hospitality and leisure bills, ensure no shop pays more as a result and help retailers keep prices low for customers.”
Following the interest rate cut earlier this month, the Bank of England highlighted that UK food prices had been rising much faster than in the euro area in recent months. Reports indicate that our prices are now rising four times faster than in France and twice as fast as in Italy and Germany, which suggests there is more at play and that domestic labour costs are currently an important driver of food price inflation.
