Shop prices fell into deflation for the first time in nearly three years, new figures show, as rate-setters grow increasingly confident that the risks of persistent inflation are fading.
Prices in the retail sector fell 0.3 per cent in the 12 months to August, according to data from the British Retail Consortium (BRC) and Nielsen IQ, down from an increase of 0.2 per cent last month.
The overall index was pulled down by non-food prices, which fell further into deflation in August.
Non-food prices fell 1.5 per cent, its lowest reading since July 2021 and down from a 0.9 per cent decrease in the preceding month.
Mike Watkins, head of retailer and business insight at Nielsen IQ, said that falling prices were a result of retailers trying to drum up some demand during a dreary summer.
“Many non-food retailers have kept promotional support due to the unpredictable weather,” he said.
Helen Dickinson, chief executive of the BRC, also pointed out the firms were discounting heavily to “shift their summer stock”.
Food inflation, meanwhile, continued to ease in August, falling to 2.0 per cent from last month’s reading of 2.3 per cent. This put food inflation at its lowest rate since November 2021.
But Dickinson warned that food prices could pick up again, re-igniting inflationary pressures. “The outlook for commodity prices remains uncertain due to the impact of climate change on harvests domestically and globally, as well as rising geopolitical tensions,” she said.
The figures come shortly after the Bank of England cut interest rates for the first time since 2020, reflecting the progress on bringing down inflation.
Although inflation jumped back above the two per cent target in July, it was a smaller rise than many economists had predicted.
Speaking at the Jackson Hole Symposium on Friday, Andrew Bailey said he was “cautiously optimistic” that inflation expectations were better anchored than during previous inflationary bouts.
“The second-round inflation effects appear to be smaller than we expected,” he said. “But it is too early to declare victory”.
The Bank is expected to leave interest rates on hold at its next meeting before cutting rates again in November.