Relief as Grocery Inflation Falls, But There is a Catch

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Relief for UK consumers as it is reported grocery price inflation has seen its steepest decline since inflation peaked in March this year, however an increase in targeted discounting by supermarkets could mean the relief is not reflected in the official data.

Kantar, the data compiler and consultancy, says grocery prices fell 1.6 percentage points to 14.9% in the four weeks to July 09 2023 as take-home grocery sales over the same period grew by 10.4% compared with 12 months ago.

While prices are still rising by historically elevated levels the findings suggest a peak has been reached and coincides with further reports of supermarkets cutting prices in order to remain competitive.

The data also comes a day before the ONS releases its inflation numbers for June with another strong reading tipped to prod the Bank of England into another 50 basis point interest rate hike on August 04.

Kantar's data reveals grocery price inflation has now been falling for four months in a row and one of the drivers of the UK's excruciatingly high inflation rates is cooling.

But the research finds consumers are increasingly honed into promotions where supermarkets reduce prices on groceries for users of their loyalty cards, such as Tesco's Clubcard and Sainsbury's Nectar.

"This could signal a change in focus by the grocers who had been concentrating their efforts on everyday low pricing, particularly by offering more value own-label lines," says Kantar.

Kantar adds that although the boost to promotional spending has contributed to bringing inflation down the rocketing prices of last summer are now falling out of the year-on-year comparisons.

As a result of the targeted discounting, Paul Donovan, UBS GWM Chief Economist,  warns that much of the good news in Kantar's survey might actually be missed in the official data.

He explains: "Much of this will not reduce food CPI in the UK. Two-tier pricing restricts price discounts to loyalty card holders, so the discounts are not counted in CPI. Shopping around is also not counted."

The most recent inflation release from the ONS revealed inflation in food and non-alcoholic beverages stood at 0.9% month-on-month in May, with the year-on-year increase at 18.4%. No other category grew to this extent on a y/y basis, underlining the impact this particular part of our cost basket is having on UK inflation.

At the current level of inflation, households would have spent £683 more on their annual grocery bill to buy the same items as they did a year previously, says Kantar.