Shop prices fall by 1.4% in December

The British Retail Consortium (BRC) reported that overall shop prices fell by 1.4% in December, which is a lower fall than 1.7% over the previous two months.

Non-food deflation decelerated to 1.9%, down from 2.3% in the previous month, which was the weakest deflation rate since June 2015.

Food deflation decelerated marginally to 0.7% in December from the 0.8% fall in November, compared with a 0.9% fall on a three-month basis.

Fresh food deflation remained at 1.2% for the second consecutive month, compared with the three-month average of -1.5%.

Ambient food moved into inflationary territory for the first time since June 2016, up 0.1% in December from the 0.1% decline in the previous month.

BRC CEO Helen Dickinson said: "December saw an easing of shop price deflation.

"Prices were down 1.4% compared to last year, but the majority of the categories we monitor, particularly non-food, saw month-on-month increases in prices, with clothing and footwear seeing month-on-month inflation for the first time in nearly two years.

"We've said for some time that we expect to see underlying inflationary pressures, notably from the post-referendum fall in the value of the pound, feed through into shop prices.

"It's too early to confirm that this is what we're seeing in December's figures: timings of seasonal discounts can cause monthly fluctuations at this time of year and retailers have continued to find ways to mitigate the impact on consumers.

"However, we expect the general trend in inflation to be upwards over 2017.

"The magnitude of the exchange rate movement and commodity price rises combined with the increasing costs of doing business means that retailers will have little choice other than to pass on some of these rising costs into prices but effect will be lessened by the intensity of competition."

Nielsen Retailer and Business Insight head Mike Watkins said: "Consumer demand has been increasingly difficult to predict in recent weeks and retailers continued to hold back on price increases in December to ensure a strong end to the year.

"However, whilst the supermarket price war helped food prices to fall in the run up to Christmas, we are now seeing the first impact of the currency depreciation of the last six months, with increases in retail prices for some non-foods such as clothing.

"Over the next six months we can expect the return of shop price inflation but as the battle for the wallet of the shopper is so intense, this will be phased in by retailers and any increases are likely to be less than other sectors of consumer spend as measured by the consumer price index."