London Evening Standard
London
Shoppers received a pre-Christmas boost yesterday as supermarket and garage forecourt price wars pushed the rate of inflation down to its lowest level for more than 12 years.
High street prices rose by only 1% in the year to November following cuts in fuel costs and heavy discounting by grocers desperately fending off competition from new discount rivals such as Aldi and Lidl.
There was also a marked “Black Friday effect”, with sharp falls in the price of electronics such as tablets and music players because of the bargains on offer in late November.
Danny Alexander, the Liberal Democrat chief secretary to the Treasury, said: “This is a welcome early Christmas present to millions of families across the country.”
The 1% figure was much lower than expected by City forecasters and compares with 1.3% in the previous month. Inflation as measured by the Consumer Prices Index has not been this low since September 2002.
It is also the strongest evidence yet of how the collapsing oil price will raise the standard of living for millions of British families after more than half a decade.
James Brown, partner at the London office of pricing experts Simon-Kucher & Partners, said shoppers will be “feeling merry this year as the price of Christmas dinner is expected to fall”.
He added: “This is driven mainly by lower global commodity prices and the ongoing supermarket price war. The rapid rise of the discounters has increased price competition, and we expect this to be particularly prevalent over the festive period as supermarkets battle to win the key Christmas shopping baskets.”
The figures, released by the Office for National Statistics yesterday, showed food prices falling by 1.7% year on year. The cost of filling the car dropped by 5.9%.
City economists now expect inflation to dip below 1%, forcing Bank of England Governor Mark Carney to write a letter to Chancellor George Osborne explaining why it is so far below the target rate of 2%. It also makes a rise in interest rates in the near future far less likely.
Howard Archer, chief UK economist at City forecasters IHS Global Insight, described the slump in inflation as “extremely good news for consumers’ purchasing power” as latest figures show earnings rising at 1.4%.
At the same time figures from retail analysts Kantar showed the “big four” supermarkets were still struggling to ward off discount competition.
In the 12 weeks to December 7, sales at Morrisons slumped by 3.2%. At Tesco they fell 2.7%, at Sainsbury’s 1.8% and at Asda 1%. The combined market share of Aldi and Lidl hit a record 8.3%.
Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said: “Britain’s supermarket price war is ramping up ahead of the all-important Christmas period. Retailers are selling more items on promotion, leading to like-for-like prices falling by 0.7% compared with this time last year.
“Cheaper groceries are an early Christmas present for shoppers, saving them £182mn in the past 12 weeks alone but this puts pressure on the supermarkets. We expect grocery deflation to continue well into 2015 as the price war rumbles on.”
Yesterday’s figures also revealed further signs of a cooling in the London property market with average values falling £4,000 to £504,000 in October and reducing the annual rate of house price inflation to 17.2%.
