Shop Price Inflation Falls But Retail Sector Remains Under Pressure

This morning has seen the British Retail Consortium’s Shop Price Index fall for the fourth consecutive month, raising hopes that inflationary pressures are continuing to ease. This came as the index decreased from 8.4% in June, to 7.6% in June on an annualised basis, while prices fell 10bps on a month-on-month basis.

Regarding the food price index, the BRC citied easing wholesale costs and improved supply chains as a driver behind why it slipped from 14.6% in June to 13.4% in July. As such, food price inflation has fallen to its lowest level in a year. However, here, the BRC’s CEO described how “we expect some global commodity prices to rise again as a result, and food prices will be slower to fall.” As we looked at last week grain prices continued to climb last month following another Russian attack on one of Ukraine’s largest ports on the Danube, rising supply-side concerns. Over July, we saw Russia scale up their activity in the Black Sea following its decision to pull out of an agreement that allowed safe passage of crops by sea out of the Ukraine. These come as the impact of heat waves across Europe and North America has put further inflationary pressure on wheat futures.

The BRC are also writing that 6,000 retail outlets have been closed in the UK in the past five years. This has come as the country grappled with a pandemic, decades high levels of inflation, and tight monetary and fiscal conditions. As such, the vacancy rate has risen from 13.8% in Q1 2023 to 13.9% in Q2. Retail property vacancies were most acute in shopping centres where vacancies are at 17.8%, as consumers across the country put more volume through online shopping and mail-order services. This also comes as many consumers cut down on discretionary spending, given the rising cost of living and stretched household finances.

In response, the BRC’s CEO stated that the business rate system should be reviewed in order to inject some health back into Britian’s retail sector. According to Helen Dickinson, the industry will be subjected to a further £400m tax bill next April which will detract away from investment and growth.