Shop prices in the UK decreased by 0.6% in November compared to a year ago, according to the BRC-NielsenIQ Shop Price Index, marking a less steep drop than October’s 0.8% decline. However, the month-on-month data showed a slight rise in shop inflation for the first time in 17 months, signaling potential price hikes for consumers in the near future.
Key Trends in Shop Prices
- Food Inflation:
- Fresh food prices rose by 1.2% in November, up from 1% in October. This increase was driven by higher costs for seafood and tea, with seafood facing elevated import and processing costs and tea impacted by poor harvests.
- Coffee prices dipped slightly, though they may rise as global bean prices approach record highs.
- Overall food inflation slowed to 1.8%, down from 1.9% in October.
- Non-Food Deflation:
- Prices for non-food products fell by 1.8% year-on-year, a softer decline compared to October’s 2.1%. Retailers continued to reduce heavy discounts, although early Black Friday deals kept bargains available across categories like fashion, furniture, and electronics.
Industry Challenges
Retailers are bracing for rising costs, including:
- A projected £7 billion in additional costs by 2025 due to changes in national insurance contributions, business rates, an increased minimum wage, and a new packaging levy.
- Narrow profit margins make it likely that retailers will pass these costs on to consumers, potentially ending the trend of falling shop prices.
Consumer Behavior
Mike Watkins of NielsenIQ noted that consumer caution persists, with shoppers prioritizing essentials and being selective with discretionary spending. He suggested that reduced inflation levels could bolster sentiment during Black Friday promotions, but broader caution around spending remains evident.
Outlook
BRC Chief Executive Helen Dickinson warned that November’s slight increase in shop inflation might mark the end of falling inflation rates. Rising operational costs in the retail sector are expected to lead to higher prices in 2024 and beyond, posing challenges for both consumers and businesses.
What’s Next?
As UK consumers navigate cautious spending and rising living costs, the retail sector must balance affordability with operational pressures. With the holiday shopping season underway, industry experts will closely watch inflation trends and consumer behavior in the months ahead.