The first drop in food prices since September has occurred this month, providing further evidence that inflationary pressures will continue to ease throughout the year.
According to NielsenIQ and the British Retail Consortium’s latest index of shop price inflation, food prices dropped by 0.1 percent in February. Food inflation on an annual basis fell to 5% from 6.1% in January. This is the lowest level since May 2022.
The monthly decrease in grocery prices has helped bring the annual inflation rate of all shops down to 2,5% from 2,9%, its lowest pace in almost two years. According to NielsenIQ and the consortium, food prices inflation peaked in April of last year at 15,7%.
Experts attribute the fall in grocery costs to fierce competition among retailers. They lowered their prices to lure customers. The cost of production has also fallen after a sharp rise due to the steep rise in energy prices after Russia’s invasion.
Helen Dickinson said, “Consumers can rejoice as the rate of inflation in retail prices has fallen to its lowest level in almost two years.” Food prices dropped month-on-month with fresh foods such as meat, fish, and fruit. The drop in food prices was due to lower input costs of energy and fertiliser, while retailers competed hard to keep their prices low.
The cost of living crisis has been a major problem for households over the past two years. Inflation outpaced wage growth during one of the longest periods in history. Retailers have been forced to lower prices to prevent losing customers due to the weak consumer spending.
In 2024, however, the living standard is expected to improve, as inflation has slowed and wages have reached near-record highs. This will likely boost consumer spending.
Mike Watkins is the head of retail and business insights at NielsenIQ. He said that the inflation rate in shops has slowed, and the price trend will continue to be downwards for the next few months. Since the beginning of the year, many food retailers have reduced their prices and passed on the price reductions that come from supply chains.
Financial markets expect that a sustained drop in consumer price inflation from its peak of 11,1% to 4% will allow to lower interest rate for the first since March 2020. The base rate is 5.25 percent, which is a 16-year record.
The loosening of the monetary policy will ease household finances further and increase economic growth. The economy entered recession in the second part of last year, after contracting by 0.3% in the three-month period ending December.
The disruption of trade caused by Houthi rebel attacks on ships that pass through the Red Sea has increased shipping costs substantially . However, economists do not expect this to impact a large number of products.
Dickinson stated: “Prices of goods other than food will be more vulnerable to shipping costs which have increased due to the rerouting of imported around the Cape of Good Hope.”
Separately figures released by market researcher Kantar showed this morning that the grocery price inflation rate fell to its lowest level in two years as fierce competition between supermarkets helped offset the disruptions to shipping on the Red Sea. In February, supermarket prices were 5.3% higher than they were one year earlier. This is the lowest price increase since March 2022. It’s also a big drop from January when it was 6.8%.
Lidl has been the fastest growing supermarket for six months in a row, with sales increasing by 10.9% over the last 12 weeks. Aldi, another discounter, also outperformed the market with sales up by 5.7% and a 9.4% share. Sainsbury’s, Tesco and other supermarkets increased their market share with sales that grew by 7.6 and 6.2 percent respectively.