Inflation takes centre stage in shaping retail pricing

Supermarket competition and pricing wars have somewhat fallen by the wayside as inflation takes centre stage in shaping the prices of retail products. Following the Brexit vote, the pound has endured a progressive fall in value, which has led to an increase in the cost of imports. This has already started to hit the high street, with shoppers paying more for groceries in particular. For example, the cost of butter increased by 15.5% in the 12 week period ending on 26 February. Figures show that, overall, grocery prices increased by 2.3% over the last three months in comparison to the same period last year.

The release of such figures follows a warning from the Organisation for Economic Cooperation and Development (OECD) issued last week that rising inflation is set to hit households leading to decreased spending and inhibiting economic growth. Such pricing movements contrast with the supermarket pricing wars experienced in the UK over the last few years. Inflation is likely to hit the pockets of the big supermarkets too as their customers look to cut back where they can. For example, Sainsbury’s has recently announced a fall in sales.

Interestingly, the impact of inflation has not been felt as harshly in other consumer sectors. Non-food product prices actually fell by an average of 1.8% in January against the previous year. However, if consumers have to pay more for groceries, they will have less money left over for other purchases, which is likely to affect non-grocery retailers too as time goes on.

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