Food prices rise as supermarket price wars squeeze sales

Tesco, Asda, Sainsbury's and Morrisons supermarket Photo: PA/PA WireTesco, Asda, Sainsbury's and Morrisons supermarket Photo: PA/PA Wire
Tesco, Asda, Sainsbury's and Morrisons supermarket Photo: PA/PA Wire
Food prices returned to inflation for the first time this year in July though the wider retail sector saw prices remain under pressure, according to new figures.

The BRC-Nielsen Shop Price Index shows food prices rose year-on-year by 0.1 per cent after falling every month for the first half of the year.

A fierce supermarket price war has pushed down the cost of groceries for consumers. Food deflation reached 0.9 per cent in March and remained there for the following two months, according to the index. The decline narrowed to 0.4 per cent in June.

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BRC director general Helen Dickinson said July’s uptick was a “short-term blip in the longer downward trend” and “not very significant”.

But it is likely to be welcomed by the likes of Tesco, Sainsbury’s, Morrisons and Asda which have seen sales squeezed in the fierce battle for customers sparked by the advance of discounters Aldi and Lidl.

It came as the wider index showed its 27th consecutive month of deflation, at 1.4 per cent, a further deepening after a 1.3 per cent figure in June.

Non-food inflation was at minus 2.3 per cent in July, compared to 1.9 per cent the month before.

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Ms Dickinson said: “Clothing retailers were keen to shift their summer stock with widespread discounts clearly part of their strategy.”

Furniture and flooring also saw a sharp acceleration in deflation as retailers “attempted to capitalise on stronger levels of demand in this category from renewed strength in the housing market”.

Food inflation returned as bread, cereals and alcoholic beverage recorded price rises while convenience stores saw increases for fresh goods accelerate.

The report said factors influencing retail prices “remain benign” with an index of commodities falling to an 11-year low in July.

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Oil prices, down by half in the last year, had dropped by 18 per cent in July partly due to the prospect of production in Iran ramping up as it reached an agreement over its nuclear programme with the US in a deal which should see sanctions lifted.