Published Thursday 10th January 2019
UK shop prices increased in December at their fastest rate in nearly six years. A report by the British Retail Consortium and Nielsen showed that overall price inflation rose to 0.3% year-on-year, a rise from 0.1% in November. It is the largest overall increase since April 2013 and only the fourth month of inflation in the last five years.
The surprisingly large growth was primarily caused by a slowdown in deflation of non-food prices, alongside a rise in the inflation of ambient foods. In a statement, the CEO of the British Retail Consortium said that the changes “only serve to underline how tough conditions are in the retail industry.” With many problems on the horizon, both the BRC and Nielsen expect that, despite the best efforts of retailers, overall price inflation is likely to remain high through 2019 as Brexit plays out.
UK Food Price Inflation Holds Steady
One of the more notable findings of the BRC/Nielsen report was the rate of inflation for food. UK food retail prices increased by 1.5% year-on-year in December, a decrease from 1.6% in November. Fresh food also declined, from 1.2% inflation in November to just 0.9% in December. The BRC said that this decrease is likely the result of lowering international food prices. Reductions in the cost of international foods have been present in the market since mid-2018, however, this is the first major indication of such changes affecting domestic prices for consumers.
This downward pressure on prices was assisted by a greatly competitive Christmas period for the food sector, carried on from the retail price wars in October 2018. The Head of Retailer and Business Insight at Nielsen said that there were “unprecedented levels of vouchering in December across many Supermarkets,” as businesses vie for consumers’ Christmas spending budgets.
Non-Food Prices at Breaking Point
Non-food retail has been under incredible strain regarding prices over the last few years. Despite inflation across all sectors, non-food consistently sees deflation in its prices, as companies compete to win consumers. However, in December non-food saw a sharp slowdown, from -0.8% inflation in November to -0.4% in December. It is the slowest rate of deflation in the sector since March 2013.
The BRC say that this change in deflation has been a result of a weakening pound sterling, a result of uncertainty surrounding Brexit negotiations. Importing non-food goods is becoming much more expensive than before, which has caused problems for retailers, particularly those with profit margins already squeezed by market pressures. These rising expenses have led to some retailers adopting different promotional strategies for the Christmas period, which has led to the change in deflation rate.
How Will Brexit Effect 2019 Prices?
Both the BRC and Nielsen mention that retailers are already under incredible stress to keep prices low. Low consumer confidence in the UK alongside a very competitive market is forcing businesses to keep their offers as appealing as possible, despite the external pressures. However, that could change depending on the result of Brexit proceedings.
With the future trading agreement between the UK and the European Union still uncertain, the BRC warns that price inflation may increase if no deal is achieved. The Chief Executive states that “the cost of importing many of the goods we buy day to day will go up significantly and retailers simply do not have the room in their margins to protect consumers from those costs.” Nielsen echoes those statements; however, they do also state that “retailers know that customers are worried about their personal finances,” and will try to keep prices low for as long as possible.
Relieving the Pressure
With the added uncertainty of Brexit, it appears as though UK retail is heading into another hugely challenging year of trading. At a time when price rises could be harder to implement than ever before, Brexit may have a huge effect on the profit margins of already strained companies. These are some of the reasons why proactive companies are already evaluating all aspects of their operations in preparation for 2019.
How ERA can help
Here at ERA, we are experts at helping major businesses reduce retail running costs long-term. We have been operating in the UK since 1992, and our sector experts have helped companies save millions in specific cost sectors, such as distribution and packaging. Following the Christmas period, many companies will be evaluating their sales. However, by also considering your expenses you will be able to discover more profit margins through your company, giving you more breathing space heading into the new year. Contact our experienced retail team today and see what savings we could find for your business.