New data published by the British Retail Consortium (BRC) this morning revealed that the annual rate of UK shop price inflation fell to 6.9% in August from 8.4% in July — the lowest level since October of last year.
Helen Dickinson, chief executive of the British Retail Consortium, said, “Better news for consumers as shop price inflation in August eased to its lowest level since October 2022. This was driven by falling food inflation, particularly for fresh produce such as meat, potatoes and some cooking oils. These figures would have been lower still had the Government not increased alcohol duties earlier this month. Across Non-Food categories, toiletries and cosmetics saw price growth ease as many key components became cheaper, meanwhile inflation for clothing and footwear increased as retailers unwound their extensive summer sales.”
The FTSE 100 reacted positively to the data, according to John Choong of InvestingReviews.co.uk: “The FTSE 100 has woken up on the right side of the bed after the long Bank Holiday weekend, jumping by as much as 1.7%. This is due to the encouraging news that inflation continues to fall, as the British Retail Consortium’s latest shop price inflation print points towards a lower CPI figure for August. Stimulus measures being enacted in China, along with a positive reaction to Jerome Powell’s speech on Friday, have also boosted market sentiment.
But Choong warned that “investors should be wary of celebrating too soon. While today’s figures are encouraging, the outlook for core and services inflation, which Andrew Bailey has gone on record saying is more important at the moment, remains cloudy. As such, there’s still inconclusive evidence of core and services inflation cooling. But provided more disinflation prints like Tuesday’s continue, markets should pull back on their expectations for the Bank’s terminal rate. This would inevitably be good news for stocks in the banking and housebuilding sectors”.
Samuel Mather-Holgate of financial advisory firm, Mather & Murray Financial, also sounded a note of caution: “Tuesday’s pop in the FTSE is more of a catch-up session following other European bourses gaining ground yesterday when the FTSE was closed for the Bank Holiday.”
Meanwhile, Wes Wilkes, CEO at the wealth manager, Net-Worth Ntwrk, said Tuesday’s positive shop price inflation data “is another piece of data for Andrew Bailey and the Bank of England to think hard about. As we may finally be seeing the start of steeper falls in prices at the same time as potential recessionary risks appear, inaction by way of a pause may be the best course of action by the Bank of England right now.”