Danni Hewson, head of financial analysis at AJ Bell, comments on the latest figures from the BRC Shop Price Index:
“There has been so little good news for consumers recently that it seems somewhat churlish not to celebrate reports that food prices have actually fallen for the first time in two years.
“Competition for our patronage has been fierce amongst supermarkets with the discounters spotting and exploiting shoppers’ desire for the best value. Their push for dominance in the UK was somewhat curtailed by the pandemic when worried households were prepared to pay for contact-free deliveries – a service neither Aldi nor Lidl provided.
“But raging inflation has hit households where it hurts. Parents have struggled to put enough food on the table to fill up their growing kids and news websites have been full of tales of people forced to choose between heating and eating. Shoppers have become ultra-savvy, scouring social media for the best deals and signing up to supermarket loyalty schemes that offered discounts.
“Both Aldi and Lidl stole market share and, with battle lines drawn, millions of pounds have been spent by all players to cut prices on selected items. For inflation-weary shoppers the headline will bring a sigh of relief, but a fall of 0.1% month on month is tiny and it’s important to remember that if we compare prices today with where they were a year ago, things look very different.
“Prices are 9.9% higher than they were last September and whilst the BRC expects inflation to keep cooling there are still a number of issues to consider.
“First, the oil price might have fallen back over the last couple of days but a barrel of Brent Crude is still over $90 a barrel and we’ve all come to understand the impact that has on production and delivery costs, as well as some product packaging.
“The war in Ukraine is still causing some supply issues and a sugar shortage and other harvest concerns need monitoring. There’s also the question of how long supermarkets will be prepared to play the price game.
“Looking at the share price of both Tesco and Sainsbury’s since the start of the year, investors clearly believe both businesses have strong competitive positions. Much attention will be paid to margins with Tesco the first to report tomorrow.
“How do these businesses balance rising costs for utilities and wages whilst keeping customers coming through the doors with carefully managed pricing? There have been allegations of profiteering strongly denied by supermarkets and discounted by the competitions watchdog.
“But price stresses remain. Just last month the makers of Galaxy chocolate bars sited ‘growing pressures’ for the decision to shrink bar sizes.
“By today’s measure consumers might finally have caught a break, but few will notice much of a difference at the till.”
