Shop prices fell over the past month driven down by clothing and footwear retailers cutting prices in an effort to stimulate demand, new figures showed.
According to the British Retail Consortium (BRC) and NielsenIQ, shop price inflation dropped to -0.2 per cent in March, down from 0.4 per cent the previous month. On an annual basis, shop prices fell by 0.4 per cent, slower than February’s drop of 0.7 per cent.
Non-food prices dipped by 0.2 per cent over the month to March and by 1.9 per cent year-on-year. Food prices remained stable on a monthly basis, the BRC and NielsenIQ said, but increased by 2.4 per cent across the 12 months to March.
• Shop price inflation falls as retailers keep offering discounts
Steep declines in the cost of clothes and footwear kept overall shop price inflation in negative territory annually in March.
Helen Dickinson, chief executive of the BRC, said: “Prices fell for most non-food categories, which kept year-on-year overall shop prices in deflation, but at a reduced rate compared to February. Clothing and footwear was in double digit deflation as a result of weak consumer demand.”
The BRC and NielsenIQ’s figures are seen as a precursor for the official inflation estimate produced each month by the Office for National Statistics (ONS). In February, the ONS said that inflation dropped faster-than-expected to 2.8 per cent from 3 per cent previously.
Economists at the Bank of England think that inflation will reach 3.75 per cent in the summer owing to increases in food and energy prices. Ofgem, the UK’s energy regulator, recently announced that the cap on average annual household energy bills will climb by 6.4 per cent from April 1 to £1,849 from £1,738 previously.
Dickinson speculated that the rise in employers’ national insurance contributions (NICs), which will come into effect on April 6, could prompt retailers to raise prices to restore their profits.
Rachel Reeves, the chancellor, announced in the October budget that the main rate of employer NICs would jump to 15 per cent from 13.8 per cent and that the earnings threshold that triggers the levy would fall to £5,000 from £9,100. The measures amounted to a £25 billion tax increase on companies, a large share of which would fall on low paid workers.
“With retailers bracing for significant extra costs which kick in later this week as a result of the budget, inflation will likely accelerate in the coming months”, Dickinson said. From April 1, the minimum wage will also increase by 6.7 per cent.
Poorer households face £71 per week shortfall
Poorer households suffered a 4.2 per cent drop in their disposable incomes over the past year, a hit that is set to be exacerbated by cuts to benefit spending announced at last month’s spring statement.
According to research by Asda, the supermarket, and the Centre for Economics and Business Research (CEBR), a consultancy, poorer households faced a £71 per week shortfall between what they earned and what they spent on living costs, household bills and taxes.
Last week, Rachel Reeves confirmed £5 billion of cuts to welfare spending, measures that are more likely to affect low income families. On average, disposable incomes climbed by £26 over the past year to £257 per week, Asda and the CEBR said.
