In June, the BRC-Nielsen Shop Price Index slowed to 1.1% from 1.5% in May, the lowest inflation rate since November 2009 when it was 0.2%, according to the British Retail Consortium (BRC).
Food inflation slowed to 3.5% from 4.3% in May, while for non-food, the deflation rate accelerated to 0.3%.
Food inflation is now at a 23-month low. Both the fresh and ambient food categories reported a sharp deceleration in their annual rates, the latter falling to its lowest rate for over two years.
Past falls in commodity prices are continuing to work their way through to retail food prices. The Thomson Reuters/Jefferies-CRB Index, a weighted commodities benchmark, had fallen 16% over the last 12-months and 7% in the latest three-month period. The pass through to ambient food prices had been slower due to a greater number of stages in the supply chain compared with fresh food items.
However, there are fears of upward pressure in the pipeline. Since the end of the survey period, 18 June to 2 July, the price of wheat and grain had accelerated by 15% and 11% respectively. Recent hot and dry conditions in the US, which supplies more than half of global corn exports, led to the US Department for Agriculture (USDA) lowering its latest forecast for corn production. This was further compounded by Russia which announced a 10% cut in its grain forecasts. The outlook for these crops is critical to global food prices, with any significant supply shock likely to put upward pressure on food prices.
Stephen Robertson, BRC director general, said: “Overall shop price inflation is at its lowest for two and a half years. This is good news all round for hard-pressed customers and shows retailers holding back prices as commodity cost pressures ease.
“Crude oil prices are down a quarter on three months ago with food commodities, such as coffee and sugar, falling sharply over the same period. In a highly competitive market, retailers are rushing to reflect those drops in good deals for customers. At the same time, weak consumer demand continues to drive deep and heavily targeted discounting, particularly among non-food goods.
“Food inflation is at its lowest for nearly two years and the price of non-food goods is down on a year ago for the fifth consecutive month.
“With real disposable incomes still dropping, let’s hope there’s more downward pressure to come from past falls in commodity prices working through to inflation.”