Annual food inflation down 'due to price cuts'

Wednesday, 03 December 2008

Annual food price inflation in November fell to 7.1% from 7.5% in October, driven by a drop in inflation on fresh food, the British Retail Consortium (BRC) and Nielsen said today.

Month-on-month food price inflation increased by 0.3% after two months of prices dropping, the BRC revealed.

Year-on-year, fresh food price inflation dropped to 7.2%.

But grocery retailers are still absorbing inflationary pressure, the BRC said, as producer price inflation was higher than these figures at 9.9% in October.

Many stores will continue to do this in the weeks leading up to Christmas, the firm added, keeping prices low in a bid to boost demand.

The figures were released after the Office for National Statistics said growth in food sales volumes dropped by 0.7% in the last three months.

BRC director general Stephen Robertson said: "The VAT cut will contribute to reducing inflation further in December but can't make a big difference to consumer spending on its own.

"The Bank of England should have the courage to cut rates by another whole point."

Nielsen senior manager of retail services Mike Watkins added: "With consumer demand so weak, food as well as non-food retailers are now choosing to use price cuts in preference to other promotional mechanics and this has further helped reduce shop price inflation in November."

Overall shop price inflation was down to 2.7% in November, the BRC said.

Today, Tesco Finance and strategy director Andy Higginson said the firm's sales growth is lower than its competitors because it has introduced a discount range, meaning inflation on these goods is lower than in other stores.