The CPI (Consumer Price Index) registering 0.0% has confirmed to the City and Westminster that we now have deflation, or at least a lack of inflation! There are certainly a number of non-retail factors in the numbers: low petrol and raw materials prices among them. Nevertheless, year-on-year prices across the retail sector have been negative for 9 months now and for 6 months at more than -4%. The writing has been on the wall for some time.
Retail is the single largest component of the UK economy outside the public sector. It alone accounts for 20% of total GDP – around twice the size of our manufacturing base and our financial services sector. So it is a critical indicator of what is happening and likely to happen. Deflation in retail is certainly most pronounced on food but it has been a feature of our non food sectors for virtually all of last year and some of 2012 too.
Retail price deflation is primarily structural. And that’s why it isn’t going away anytime soon. Both our food and non food retail sectors are hugely oversupplied with players and capacity. It will take quite some time for market forces to force the inevitable shake out. Contrary to the concensus of economists’ thinking, I believe deflation will be with us for more than just a few months.
** For more detailed analysis and forecasts of the future retail landscape and the winners and losers, visit the premium content of richardtalksretail.co.uk