Shop price inflation in the UK dropped to a one per cent year-on-year rate in September, following a gain of 1.1 per cent in the year before, according to the latest data out this morning from the British Retail Consortium (BRC).

Food inflation was unchanged at 3.1% year-on-year for the third successive month, while non-food prices slipped by 0.2% year-on-year, following a 0.1% year-on-year decline in August.

The BRC commented that shop price inflation, which peaked at 2.9% in June 2011, has been held back by retailers' extensive use of promotions in the face of weak consumer spending.

"However, we would note that while annual food price inflation has fallen to its lowest level since July 2010, the pace of deflation in non-food prices has been on a generally moderating trend since April. Moreover, we see upside risks to UK food prices over the next 12-18 months as a result of increases in global food commodity prices. We expect CPI inflation to remain at around the current 2.5% year-on-year level in the near to medium term," economists at Barclays Research are saying.

AB

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