Hard-pressed consumers still facing a rise in the cost of living

By Nathalie Thomas
Published on Tuesday 4 October 2011 21:15

PRESSURE on household budgets remained unchanged last month as the rise in the cost of living held steady at 2.7 per cent, figures today show.

Food inflation, at 5 per cent, is still the biggest thorn in the sides of cash-strapped shoppers but it remained flat between August and September.

Meanwhile, the cost of non-food items – such as clothing, furniture and electricals – dropped slightly month-on-month as retailers slashed prices and offered aggressive discounts in order to stay in business. Non-food inflation dipped to 1.4 per cent from 1.3 per cent between August and September.

The British Retail Consortium, which publishes the figures, said it doesn’t expect any dramatic changes in overall shop price inflation in the run-up to Christmas although all eyes will be on October’s figures after Tesco last week kicked off supermarket price wars by launching its £500 million “Big Price Drop” campaign. However, there is some scepticism that Tesco’s assault will have much effect as a price-tracking survey by the Grocer magazine showed that the cost of a basket of 33 staple items had in fact gone up since the campaign was launched.

Stephen Robertson, director general of the BRC, said of the figures: “The pressures on prices from world commodities, import inflation and January’s VAT rise haven’t gone away but they haven’t worsened either.

“Shop price inflation is stable and well below the consumer price index (CPI), the government’s official measure of inflation.

“The Bank of England expects CPI to go on rising but that’s due to things like utilities, petrol and insurance not shop prices. In fact some goods – clothing and electricals – continue to be cheaper than a year ago as retailers discount aggressively to produce sales and stay in business.”

Although it will be of little comfort to most households that food prices are now 5 per cent higher than they were last year, Mike Watkins of research group Nielsen said the levels of food price inflation are nothing compared to the highs seen at the start of the recession three years ago.

Watkins said it “certainly looks as if the peak of 2011 will be a lot lower that than the high of over 8 per cent that we saw at the start of the economic downturn three years ago”.

He added that shoppers “continue to get further savings from promotions and price discounts at the checkout, which in turn is bringing down the cost of the shopping trip”.

The research reveals that in certain categories, such as clothing and footwear, there is in fact deflation.

Annual deflation in clothing and footwear accelerated to 3.4 per cent in September from 1.7 per cent in August, representing the highest deflation rate since December 2009.

The latest shop price inflation figures are published as Tesco is today expected to report a poor sales performance in the UK, with some analysts pencilling in the worst quarterly figures since 1991.

The market leader has recently seen its stranglehold on the British grocery market loosen as budget chains such as Lidl and Aldi once again gain favour among the so-called “squeezed middle”.

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