Food prices fell by 0.8% in January but inflation will return during 2017, according to the British Retail Consortium and analysts Nielsen.

The BRC-Nielsen shop price index revealed that year-on-year food deflation accelerated from the 0.7% decline in December, although month-on-month food prices were up. An online C-Store poll revealed that 64% of respondents had seen evidence of price rises last month.

Fresh food deflation remained at 1.2% in January for the third consecutive month, while overall shop price deflation accelerated to 1.7% from 1.4% in December.

Helen Dickinson, BRC chief executive, suggested that the year-on-year decline in shop prices was not indicative of future projections.

“For now, consumers continue to benefit from falling shop prices year on year. However, fluctuations in the monthly figures belie an underlying trend of building cost pressures that are gradually feeding through from the fall in sterling combined with higher commodity prices,” she said.

“This will inevitably mean that we start to see a general upward trend in inflation over 2017.

“In fact month-on-month food prices were up, although the impact of this on inflationary pressure was offset by the discounting of excess stock by a number of non-food retailers after a tepid sales performance over the festive period.”

Mike Watkins, Nielsen’s head of retailer and business Insight, said: “Consumer demand was perhaps better than expected at the end of last year and retailers are still managing to limit currency related cost increases being passed onto shoppers.

“This is helping to give some stability to the industry at the start of 2017. However, there is already inflationary pressure elsewhere in the economy and this will start to have an impact on the disposable income of households later in the year.” 

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