Food price inflation tumbles to lowest for over three years

Food prices tumbled to a three-year low in March, handing household budgets a fillip ahead of the general election. The odds on retailers stepping up their current fierce promotional activity also shortened after non-food inflation also fell last month for the first time since VAT returned to 17.5 per cent on 1 January 2010.

The easing of food and non-food prices contributed to the annual rate of overall shop price inflation falling to 1.2 per cent in March, compared with 1.7 per cent the month before, reported the British Retail Consortium-Nielsen Shop Price Index. Food price inflation came in at 1.2 per cent last month, down from 1.3 per cent in February, driven in part by downward price pressures on vegetables.

Stephen Robertson, the director general of the BRC, said: "This is great news. Food inflation has fallen to its lowest for over three years and overall shop price inflation is at its lowest since November."

The BRC-Nielsen survey reported that ambient food prices fell by 0.2 per cent to 2.2 per cent in March, citing steep falls in the annual rate of commodity prices.

While inflation in the breads and cereals category was broadly flat, the annual commodity price of corn fell by 7.1 per cent, wheat was lower by 8.6 per cent and coffee tumbled by 14.3 per cent in March. In the fresh food category, the survey pointed to "considerable downward pressure" on vegetables, while the price of milk, cheese and eggs remained broadly flat.

Last week, separate data from Kantar Worldpanel found that sales growth at the UK's biggest grocers has slipped its slowest rate since August 2007. The market research firm said that the overall growth rate at major grocers dropped to a "pre-recession low" of 3.6 per cent for the 12 weeks to 21 March.

According to the BRC-Nielsen survey, the annual rate of non-food price inflation fell to 1.3 per cent in March, compared to 1.9 per cent in February.

Mr Robertson said: "The competitive battle is even fiercer than usual as retailers fight it out to overcome the reluctance of customers to spend caused by pre-election uncertainty. Falling shop price inflation is particularly welcome relief for consumers as they face sharp rise in other living costs, such as fuel."

The BRC said the easing of non-food price inflation suggested that many retailers have not passed on the 2.5 per cent rise in VAT in full to consumers. It said that weak consumer demand and spare capacity in the economy are "bearing down on prices" and, as a result, retailers are absorbing a "large slice" of inflationary pressure into their margins.

Mike Watkins, the senior manager of retailer services at Nielsen, said: "Retailers have needed to drive footfall with increased promotional activity pre-Easter and also to compensate for the increase in VAT. Overall, the consumer remains cautious about spending."