UK shop prices fell 0.6% in September, marking the steepest deflation in three years as non-food prices experienced significant declines, while food prices rose slightly.
According to the BRC-NielsenIQ index, this decline accelerated from a 0.3% drop in August, with non-food items leading the way in deflation due to big discounts and stiff competition among retailers.
Despite the overall drop in prices, food inflation ticked upward due to poor harvests, pushing up costs for key ingredients like cooking oils and sugar.
Non-food prices see sharpest drop since March 2021
Non-food price deflation reached 2.1% in September, with prices falling more sharply compared to the previous month’s 1.5% decline.
This marked the sharpest rate of deflation since March 2021. Retailers slashed prices for furniture, clothing, and other non-food items in a bid to lure shoppers back amid fierce competition.
These significant price drops come as retailers face mounting pressure from economic challenges and changing consumer spending habits.
The BRC reported that the competition among retailers has led to heavy discounting across multiple sectors, which contributed to the accelerated deflation in non-food categories.
These reductions were especially notable in sectors such as clothing and home furnishings, where price cuts were aimed at stimulating demand in a relatively sluggish market.
Food inflation rises to 2.3% in September
While non-food prices fell, food prices saw an uptick, with inflation rising to 2.3% in September, up from 2.0% in August.
This increase was attributed to poor harvests in key agricultural regions, which led to higher prices for cooking oils, sugar, and products containing these ingredients.
Although food inflation remained above the three-month average rate of 2.2%, it continues to hover around its lowest levels since November 2021.
Fresh food inflation, in particular, accelerated to 1.5% in September from 1.0% the previous month, driven by supply chain challenges and increased input costs for producers.
However, ambient food inflation decelerated slightly to 3.3%, down from 3.4% in August, providing some relief for consumers in these categories.
Deflation trends could reverse due to geopolitical and regulatory factors
While the overall trend of deflation in shop prices may be welcomed by consumers, industry experts are warning that this trend could be short-lived.
BRC chief executive Helen Dickinson highlighted several factors that could reverse the easing of shop prices.
Ongoing geopolitical tensions, climate change, and regulatory costs imposed by the government could all contribute to rising costs for retailers, which may, in turn, lead to higher prices in the future.
Retail sector calls for relief ahead of UK Budget
Ahead of the UK government’s Budget, scheduled for later this month, retailers are pushing for policy changes to reduce their tax burden.
Dickinson called on Chancellor Rachel Reeves to introduce a 20% adjustment to rates bills for all retail properties, arguing that the retail sector faces a disproportionate tax burden compared to other industries.
She believes this adjustment could help level the playing field, protect jobs, and encourage investment in the sector.
Analysts, including Clive Black, suggested that the recent deflation trend could provide some comfort for the Bank of England as it navigates monetary policy in a volatile economic environment.
Black noted that the retail sector could experience a quieter October as businesses and consumers alike await the announcements from the much-anticipated Reeves Budget.
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