UK Shop Price Inflation Fall to 38-month Low at 0.6% in January

Shop prices in the UK have recorded its slowest pace of rise in more than three years as post- Christmas sales eased spending pressures on households to a large extent, according to the British Retail Consortium (BRC).

Shop price inflation in the country declined to 0.6 percent in January from 1.5 percent in December, the BRC said. The inflation rate was the lowest since November 2009, when the index showed a reading at 0.2 percent.

Food inflation fell to 4.0 percent in January from 4.1 percent in December, while non-food inflation dropped to 1.4 percent after a flat reading in December.

"Overall shop price inflation is at its lowest since November 2009, helping counter much bigger increases in other household costs which are undermining customers' spending power. With consumer confidence creeping up, retailers will be hoping for an increased willingness to buy more than just immediate needs," BRC director general Helen Dickinson said in a statement.

She attributed the year-on-year fall in non-food prices to cheaper clothing and electrical.

"Weak demand for clothing necessitated big price cuts. Clothing prices were down 7.7 percent on the year before, their biggest drop in the six years of this survey. But clothing suffered its worst sales fall since last Easter," she said.

Dickinson noted that discounts, though not widespread as last year, were deeper during the month, as many retailers clear stock to make way for spring and summer ranges.

The fall in food inflation was due to the decline in commodity costs and better fresh food prices, according to her. Commodities such as sugar, corn, soya bean, cocoa and coffee experienced price declines in January.

Dickinson added that food inflation will be stable as the year goes on, in the absence of any major shocks in the supply chain.

"With the traditional high street January sales being replaced by year-round discounting, it's no surprise to see a continuation of deflation in non-food, particularly in clothing and footwear where half-price reductions have been used to attract shoppers post-Christmas," said Mike Watkins, head of retailer and business insight at Nielsen, which helps the BRC in compiling the shop price index.

"For food retailers, despite seasonal promotions coming to an end, food inflation has remained steady at around four per cent. This is perhaps a positive sign that the industry is managing the impact of any cost inflation coming through the supply chain."