The first evidence emerged this week of how supermarket price wars were helping to force food prices down. Food prices were 0.5% lower in the first two weeks of this month compared with the previous month, according to the British Retail Consortium (BRC).
The shift takes annual food price inflation from 5% to 4.2% driven by the fresh food sector. BRC attributed the fall partly to the supermarket price war, which began with Tesco’s ‘Big Price Drop’ campaign, and partly to the easing of soft commodity prices.
City analysts described the impact on food prices as “real” and “noticeable”. Darren Shirley, an analyst at Shore Capital, said: “While we balk somewhat at the overstatement that the industry pricing activity has had a ‘dramatic’ effect on food pricing, it is none the less real and noticeable.”
“Whilst [food prices are] lower and falling, something that embattled consumers will no doubt welcome, let us be clear that food inflation is still very much 'in the system', these remain fulsome rates of price growth year-on-year.”
Meanwhile, as the all-important festive season approaches, many retailers are growing increasingly nervous about whether a busy Christmas will help to ensure a profitable New Year.Retail sales values were 0.6% lower on a like-for-like basis in October 2011 compared with the same month of last year, according to a report from the British Retail consortium and accounting firm KPMG. But total sales were up 1.5%, compared with a 2.4% increase in October 2010.
Stephen Robertson, director general, British Retail Consortium, said: "Which part of the wave we're riding varies from month to month - but the water is consistently chilly. For a fifth month, total sales growth continues its strangely regular flip-flopping between 2.5 and 1.5%. But, the year-to-date figure, which smoothes out these minor moves, is unchanged from the previous month. This is evidence of the basic weakness of consumer confidence and demand and it is worrying, this close to Christmas.”
