Shop inflation hits record low after Christmas discounts

 

Economics Editor

Shop prices fell at their fastest rate on record in December, in a sign of intense competition on the high street over the crucial Christmas trading period.

The British Retail Consortium’s Shop Price Index dropped 0.8 per cent on a year earlier last month, more than the 0.3 per cent fall in November and the biggest registered decline since the index was established in 2006.

This marks the eighth consecutive month that shop prices have been lower according to the BRC, which compiles the survey in conjunction with the market research firm Nielsen.

Non-food prices were a full 2.3 per cent lower. There were declines in the prices of books, stationery and home entertainment goods. Footwear, electricals, clothing and furniture prices were also down again. “Retailers worked hard to help budgets go that bit further this Christmas” said Helen Dickinson of the BRC.

The survey covered “Cyber Monday” on 2 December when online retailers introduced steep discounts. According to the BRC, physical retailers felt pressure to introduce similar early discount offers in order to compete. While food prices were up 1.7 per cent on Christmas 2012, the inflation rate for groceries was at its lowest rate since March 2010.

The trend in shop prices has tracked the decline in the official broader measure of consumer price inflation in the UK, which fell to 2.1 per cent in November, its lowest rate in four years. The annual CPI rate has retreated from 2.9 per cent last summer and inflation is predicted by forecasters to decline further this year, although it is still expected to remain above the Bank of England’s 2 per cent target.

Despite wages continuing to rise by less than the rate of inflation last year reinvigorated household spending was one of the main supporting pillars of the economy.

In the eurozone, inflation fell in December, stoking fears that the single currency bloc could tip into outright deflation. Annual price inflation in the bloc declined to 0.8 per cent from the 0.9 per cent recorded in November. At its last meeting the European Central Bank cut its benchmark interest rate to a record low of 0.25 per cent, reflecting the subdued inflation outlook. The ECB will gather again on Thursday in Frankfurt but financial markets are not anticipating another cut.

Retailers have had a mixed Christmas in the UK. Like for like sales at Next, and John Lewis were up 11.9 and 6.9 per cent and respectively. House of Fraser said turnover increased by 4.3 per cent.

However, Debenhams was forced to issue a profit warning after like for like sales increased by only 0.1 per cent. Marks and Spencer is also widely expected  to report disappointing figures for its Christmas trading period.

Analysts are also braced for another decline in Tesco’s sales. Some expect Sainsbury’s to have done worse than last year too.

John Lewis experienced a big boost from online sales over Christmas. Sales from its “click and collect” services were up 60 per cent on Christmas 2012.

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