Has grocery price deflation run its course? Last month, supermarket prices fell by their lowest amount so far in 2015, as four months of ever-increasing deflation came to an end.
Year-on-year deflation for the month to 1 May stood at -1.6%, according to The Grocer Price Index (GPI), compiled by BrandView.com from prices on about 60,000 items across the big four.
This is a marked recovery on the -2.5% recorded in the month to 1 April and is the lowest rate since December, when price deflation stood at -1.3%.
Deflation appears to be easing due to two key factors: first, the year-on-year comparatives for prices are becoming tougher as price cuts and deflation hit the market in the late spring of 2014; second, there is evidence shelf prices began to rise back up slightly last month.
The GPI first recorded deflation in the month to 1 June 2014 (-0.3%), but inflation had already collapsed to just 0.2% in the month to 1 May 2014, which serves as the comparison for the current year-on-year GPI figure.
Inflation was running at almost a percentage point higher in the month to 1 April 2014 at 1.1%, which helps account for the current contraction in year-on-year deflation.
These tougher year-on-year comparatives are likely to constrain the level of deflation over the coming months, as prices were tumbling throughout much of 2014.
Although the overall deflation picture is easing, prices in all of the big four remain lower than they were a year ago. Morrisons leads the pack with deflation of -4.3%, and Asda’s rate of -0.4% in the current GPI data is its lowest for almost a year. All grocery categories continue to have lower prices than a year ago, led by household, health & beauty and bakery, all at -3%.
However, on a month-on-month basis, prices have crept up by 1.5% - the highest month-on-month rise for over a year. Month-on-month price rises were particularly notable in alcoholic drinks (where were prices up by 4.2%) and biscuits and confectionery (+2.1%) as items came off promotion.
But there is a caveat: the early Easter makes it likely the month to 1 May covered fewer Easter discounts than the month to 1 April and the corresponding month in 2014. That could explain much of the month-on-month uptick in prices.
The ratcheting up of deflation in the second half of 2014 may mean year-on-year deflation has peaked for now, but it’s unlikely to tip into inflation any time soon. Sainsbury’s boss Mike Coupe, for example, thinks deflation will stay at least for the rest of 2015 and into 2016.
He said at Sainsbury’s results: “Volumes in our marketplace have been broadly flat for around five years and actually we are beginning to see a volume uptick, but the big factor that weighs heavy on our industry is deflation driven by lower commodity prices and price competitiveness.”