Retailers feel the pinch as prices tumble further

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New research shows shop prices in the UK have tumbled for a second consecutive month, boosting the spending power of consumers but squeezing margins for retailers.

Overall shop prices reported deflation of 2.0% in June, deepening from the 1.8% decline in May. Non-food deflation fell to 2.8% in June from 2.7% in May.

Helen Dickinson OBE, chief executive of the British Retail Consortium, said the UK has seen an “extraordinary” 38-month run of deflation, but predicts that will change – although she warns there are myriad variables which will affect it.

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“The time it takes for any price increases to make a re-appearance will depend on a combination of factors including the future value of the pound, commodity prices and any eventual impact of last week’s Brexit vote on input costs,” she said. “That said, there won’t be any instant shocks as any changes will take time to feed through. Continuing fierce competition also means that putting up prices may not be viable for some retailers. For now, and for the short term at least, the good news for consumers is set to continue.”

Mike Watkins, head of retailer and business insight at Nielsen, which crunches the numbers, added that while changes in the economic landscape are anticipated next year, the current focus for the industry is the continued deflationary environment.

“This is good news for shoppers who benefit from falling prices but is added pressure for retailers as they balance increased costs from the national living wage and investment in multi-channel, with volatile consumer demand. A return to inflation is not expected just yet so it`s business as usual over the summer months and encouraging shoppers to keep spending is the priority,” he said.

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