The latest British Retail Consortium-Nielsen study recorded overall shop price deflation of 2 per cent in August, against a 1.6 per cent decline the month before.
The slide in prices was triggered by more promotions from retailers coupled with a drop in the cost of oil, according to the shop price index.
Food price deflation also accelerated to a record low of 1.1 per cent in August, compared with 0.8 per cent in the previous two months, as a global supply glut of wheat weighed on prices. Non-food deflation hit 2.5 per cent, from 2.2 per cent in July.
“Retailers will have to make a decision about when and how much [of cost increases] to pass on to consumers” - Helen Dickinson
The report said that retailers had yet to feel the full force of the rising costs caused by the plunge in the value of the pound following the Brexit vote. However, Helen Dickinson, British Retail Consortium chief executive, said prices are expected to rise in the coming months when costs are passed down to consumers.
She said: “The devaluation of sterling in wake of the referendum will put upward pressure on shop prices. But that’s likely to take several months to properly feed through, given that retailers won’t feel the brunt of the cost increases until existing contracts with foreign suppliers come to an end.
“Even then, retailers will have to make a decision about when and how much to pass on to consumers. Given the strength of competition in the market, and if the economy softens in line with predictions, any pass through may be more limited than implied by the exchange rate movement.”
Spending has remained buoyant despite fears that Brexit uncertainty would hit retail sales after Britain voted to leave the European Union.
The Office for National Statistics announced last month that retail sales had risen 1.4 per cent in July – against economists pencilling in an increase of 0.1 per cent.
The news comes after retail sales suffered their sharpest fall in six months in June, contracting by 0.9 per cent from the previous month.
Mike Watkins, Nielsen’s head of retailer and business insight, said: “Lower prices than a year ago across most channels … has helped to keep consumer spend buoyant over the summer.
“Competition for discretionary spend is likely to intensify as we head towards the end of the year, so retailers will be keen to keep prices low.”
