‘Uncontrollable food inflation having knock-on effect on non-essential spending’

High food inflation pushed up grocery spending last month, prompting many consumers to cut back on discretionary purchases, according to retail sector data published today (6), showing food inflation is having a “knock-on effect” on non-essential spending.

Figures from trade body the British Retail Consortium and KPMG, the advisory services firm, showed that UK food sales increased by an annual rate of 9.6 per cent in May, well above the 12-month average of 6.9 per cent. The figure was also more than double the overall retail growth rate of 3.9 per cent, the slowest in six months, highlighting how rising food prices are now the main driver of overall inflation.

May’s pace of overall retail spending was dragged down by non-food sales, which remained largely flat at 0.7 per cent. This is above the 12-month Total average growth of 0.5 per cent.

Helen Dickinson OBE, chief executive at British Retail Consortium (BRC), stated that the trio of bank holidays failed to get shoppers spending as sales growth slowed to its lowest level in six months.

“While food sales got a boost from the Coronation weekend, this was not sustained for the rest of the month. Meanwhile, growth in discretionary spend continued to tumble as the high cost of living squeezed households. There was cause for some optimism, however, as brighter weather at the end of the month led to a much-needed pick-up in summer fashion sales, as well as gardening and DIY products.

“With consumer confidence still recovering from record depths, and continued tightening of household incomes, we are unlikely to see substantial sales growth in the coming months. But, with signs that inflation has possibly peaked, retailers are hopeful that confidence will continue to improve. Now is not the time for Government to impose more regulation and tax on business that will push up costs for retailers and prices for their customers,” she said.

Paul Martin, UK Head of Retail at KPMG said that despite warmer weather, a national celebration and month of bank holidays, retailers saw pretty mild growth in May with sales figures up just 3.9 per cent on last year, and lower than the five per cent growth seen in April.

“High street retailers saw more categories slip into negative sales territory last month, with health, beauty and food driving sales on the high street. The gloom continued for online retailers with just four categories registering positive sales figures and total sales down by three per cent. Online penetration rates continued to slide, sitting at 36 per cent, as consumers return to bargain hunting in store.

“Retailers will be hoping that inflation levels in the wider economy continue to move in the right direction in order to boost much needed consumer confidence. The wild card for the retail sector remains uncontrollable food inflation, which shows little sign of coming down in the near future, and this is having a significant knock-on effect on non-essential spending. The grocery sector is the fastest growing part of the consumer wallet at the moment, so consumers are having to spend more of their money in the one area that is getting disproportionately more expensive.”