Morrisons Price Crunch

Supermarket shelf prices are on the rise for the first time in more than two-and-a-half years.

The industry-wide deflation that has gripped the grocery market since mid-2014 fell back to zero in the month to 1 February and prices have now risen by 0.5% year on year in the month to 1 March, according to The Grocer Price Index collated by Brand View.

The rate of inflation has increased by more than two percentage points in the past four months as deflation was still at -1.4% in the month to 1 December.

Each of the big four included in the GPI calculation saw prices rise last month for the first time since inflationary pressure returned to the market.

Tesco remains the most reluctant to raise prices, with overall prices up just 0.03% year on year in the month to 1 March having been 1% lower year on year over the previous month.

Three of the big four showed their highest levels of annual inflation for almost three years, with Asda showing the largest annual price increases at 1%.

However, Morrisons showed its lowest level of price rises for three months - its annual inflation was just 0.3% compared to 0.7% in the previous period and 1% in the month to 1 January.

The return to industry wide inflation illustrates the impact of the post-Brexit slump in the value of the pound as annual deflation was running at -3.1% in the month before June’s vote to quit the European Union.

Nine categories were back in annual inflation last month, once more led by baby goods at +1.6%. Meat, fish & poultry has shown a dramatic turnaround since category deflation hit -4.8% in the month to 1 November and is now up 1.2% year on year, with chilled foods up 1.1%.

Only prices in the small deli category and health & beauty remain more than 1% lower year on year.

On a month-on-month basis, prices actually edged down 0.4% in the month to 1 March, as the rise in annual inflation was driven by a far smaller cut in monthly prices compared with the same period last year.

The biggest monthly rise was seen in the meat, fish & poultry category, with prices up 4% in just one month. Baby goods and bakery products were both down 2.2% in the month.

The return of inflation has helped boost supermarket sales, according to Nielsen, with supermarket takings at the tills up 1.1% in the four weeks to 27 February.

However, Nielsen’s UK head of retailer and business insight Mike Watkins warns rising prices means consumers are becoming “more careful about how much they spend, which results in more promiscuity in both the number of stores they visit and how often they shop”.

The BRC found this week overall UK retail sales decreased by 0.4% in February despite rising food sales as “consumer confidence is showing signs of deteriorating”.