Shop prices have been ticking down for more than three years in the United Kingdom. But Brexit could push them up by the end of 2016.
According to the latest BRC-Nielsen Shop Price Index, published Wednesday, overall prices declined 2 percent in June. That’s a deeper rate than May, when prices were down 1.8%. It also marked the 38th straight month of sinking prices.
“This extraordinary 38-month run of deflation has undoubtedly been good for consumers. While it has been driven largely by falling prices for non-food items we have, from time-to-time, seen food in deflationary territory as well,” said Helen Dickinson, chief executive at the British Retail Consortium (BRC).
She noted that food prices fell by 0.8%—their biggest decrease in more than a year. At the same time, deflation decelerated in clothing and footwear, slowing from a 7.5% decline in May to a fall of 7.3% in June.
While Dickinson said shop prices will rise again, it will depend on a combination of factors, including the future value of the pound, commodity prices and any eventual impact of Brexit on input costs.
Even so, the recent depreciation of the pound could put pressure on clothing prices next year. The BRC said it expects sourcing costs will increase for retailers that import goods in dollars.
“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,” Dickinson continued. “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, agreed. “Whilst changes in the economic landscape are anticipated next year, the current focus for the industry is the continued deflationary environment,” he said. “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.”