Shop prices fall again

In the year to March 2018 UK shop prices fell by 1% according to the British Retail Consortium. They tell us that “shop prices have been deflationary for 59 months now, and this is the deepest deflation since February 2017”. I haven’t heard the usual voices scrambling to tell us this is all because of Brexit. There has been far less comment on this than the rush to get it wrong when general prices were briefly going up a bit faster last year, when many came forward to tell us it was the result of sterling which in turn they thought was related to Brexit. I explained then that their forecasts of much higher inflation to come were likely to prove wrong, and explained how they had misunderstood the movements of sterling and their likely impact on prices.

Sterling has been rising gently for some time as we move closer to Brexit, and shop prices have fallen again. Sterling fell a lot in the year and a half before the vote for unrelated reasons. It had fallen from $1.71 to $1.42 before the referendum. This did not stop shop prices falling. It is around $1.40 today. The Euro was strong last year against all comers. Shop prices have always had more to do with world output, internet competition to retailers and the hugely competitive market for things like clothing and electrical appliances that the world market has provided. The Retail Price Index has been more volatile thanks to rising international energy prices and domestic price pressures like Council Tax and the EU/UK move to dearer electricity for policy reasons.


  1. duncan
    April 5, 2018

    I see this PM is going ahead with a socialist inspired energy price cap to the point of using parliamentary legislation to impose it

    It’s very sad to see this piece of legislation backed by my party. It reveals this PM’s deep seated socialist tendencies and that is warning sign to all those who embrace and cherish economic and personal freedoms

    She conveniently ignores the fact that energy companies (producers or indeed suppliers) must find other ways of recouping the cost of production and cost of capital and capital replacement. That is the nature of commerce.

    It is healthy competition between suppliers that imposes downward pressure on prices not profiteering politicians who think they can profit politically from ‘untrammelled’ virtue signalling.

    This PM leaves a sour taste. Her micro-interventionist mindset, across many private areas of life, is deeply un-British and is leading this country in a direction that will have and is having pernicious consequences

    1. Peter
      April 5, 2018

      Mr. Redwood points to shop prices and investment in car production as outcomes that have gone the opposite way to that predicted by the experts of Project Fear.

      All well and good.

      However, the issue that will concern many here is the lack of progress on clean Brexit and the woeful performance of the Prime Minister and her ministers and civil servants.

      I don’t see anything improving on this front. The Prime Minister will be allowed to limp on and drag us into Brexit in Name Only.

      1. Denis Cooper
        April 5, 2018

        The government has stood back and watched as Remoaners and their allies in the mass media have persevered with their longstanding false narrative that Brexit is bound to be economically damaging and the “cleaner” it is the more damaging it will be. New editions of the speculative, biased and in some respects factually incorrect analyses that the Cameron government presented as reliable forecasts of disaster before the referendum are now being pushed out, leaked and presented as proven fact even though the previous forecasts have proved false. The May government does nothing about this, it does not rebut the falsehoods and nor does it move to punish the civil servants who have been guilty of breaching confidence. So I can understand why you have lost whatever faith you had in the intentions of this government and suspect that it is working to betray us.

      2. Hope
        April 5, 2018

        Duncan is correct. As pointed out by Guido and others, Other countries have stopped price caps as a failed policy. Competition is key and the scrapping of the EU Climate Change Act. Sadly, but predictable May wants to build on it!

        May is a complete and an utter disaster, whether it be public services, energy, alleged pay gap, gay marriage, crime and disorder, secure borders, mass immigration, territorial waters and fishing stocks or even the current Russian issue. We are now suffering a high murder rate in London because of May and her current HS. a gift to Labour, May is a failure that keeps on giving to the opposition.

    2. jerry
      April 5, 2018

      @duncan; It is not your party, it is our party, with a very broad church of opinion…

      As for “socialist inspired” policies, were you way or asleep last June, when the electorate told the Conservative party that they quite like the idea of Govt intervention, to protect the consumer etc.. If your ideals take over the Conservative party again (as they did between 1997 – 2005 ‘your party’ will again be out of power for a decade plus whilst the rest of us either sit on our hands or worse.

      “It is healthy competition between [energy] suppliers that imposes downward pressure on prices”

      That is why prices tend to average out far higher than world wholesale prices, as has been noted (even by Conservative politicians) to rise like a rocket but fall like a feather in response to wholesale price changes. The only people who do not complain are those who hold significant share portfolios in such companies, higher profits mean higher dividends after all – do you hold, or are reliant on, such shares @duncan?…

      1. jerry
        April 5, 2018

        @duncan; You keep demanding for tax cuts, how about the next round of tax cuts be less money raised by HMT via the usual bidding rounds for licences that are nothing more than stealth taxes on us plebs.

        Ofcom today announced a whopping £1355.4m has been paid by the various mobile telecoms companies to operate within the latest round of 4G/5G spectrum, this money has to be recouping before the cost of production and cost of capital and capital replacement can be allocated, guess who ends up paying – yes the consumer. Thus competition, highest bidder tends to win these spectrum auctions, puts the price up for the end user, not down, as hard-line capitalist like yourself claim.

    3. Ian wragg
      April 5, 2018

      If all the subsidies and distortions were removed from power generation prices would fall.
      We are reaching a point where we will have 25% installed capacity which will only be available for 25% of the time.
      Until we get our own secure gas supply we will be in a very precarious situation. A price cap won’t help when we’re sat in the dark.

    4. Lifelogic
      April 5, 2018

      Indeed. As E Powell might have put it:-

      Does my right hon. Friend not know that it is fatal for any Government or party or person to seek to govern in direct opposition to the principles on which they were entrusted with the right to govern? In introducing a compulsory control of wages and prices, in contravention of the deepest commitments of this party, has my right hon. Friend taken leave of her senses?

      But then did she ever have her senses? Her “building on EU workers rights”, “no points based immigration system” and the “gender pay war” are absurdly childish & misguided. As is employing tax ’til the pips squeak Hammond as chancellor. She is behaving like Corbyn light, acting just as a warm up act for him.

      Who will rescue us from May then Corbyn and the SNP?

    5. Bryan Harris
      April 5, 2018

      It strikes me that too many Tories have accepted the dark side of politics, and move towards a socialist agenda on too many things – It is time the Tories showed their mettle and stood up for their own deep rooted beliefs.

    6. A.Sedgwick
      April 5, 2018

      51 weeks to find out how bad she really is. Forgetting her forgettable term as HS her first days as PM showed her business and political ineptitude from cabinet appointments, Hinckley C and HS2 confirmations and her irrelevant, personal grammar school crusade. Some might say a Machiavellian election to delay Brexit and quieten the few true Conservative Leaver MPs.

      1. rose
        April 7, 2018

        I don’t think the calling of the election was machiavellian, just vain. She really believed that because the opinion polls were saying Corbyn was not wanted, therefore she was wanted and popular. They just meant she was the lesser of two evils. As soon as the public got a better look at her, they weren’t so sure. And they still aren’t.

    7. Sakara Gold
      April 5, 2018

      There is no healthy competition between energy suppliers in the UK. The big six operate as a cartel and fail to move their loyal customers onto cheaper tariffs when their fixed price contracts end. This is why the government wishes to regulate domestic energy prices.

      Incidentally, in spite of sterling rising to levels against the dollar not seen since before Brexit, recently diesel prices have risen 2p/l in my area. The sooner we are all travelling in driverless electric vehicles – powered by cheap renewable energy – the better

      1. Edward2
        April 5, 2018

        Renewable energy is not cheap.
        Coal and gas are cheaper.
        Nuclear in France is cheaper.
        There is nowhere near enough electric generating capacity to charge up millions of electric vehicles.

  2. Mark B
    April 5, 2018

    Good morning.

    The Retail Price Index has been more volatile thanks to rising international energy prices and domestic price pressures like Council Tax and the EU/UK move to dearer electricity for policy reasons.

    All government (Tory) inspired price rises. Just think how much better things could be without the State ripping us off.

    1. Lifelogic.
      April 5, 2018

      Indeed. What pushes up prices most, green crap, bloated government, planning restrictions, over taxation, over regulation …..

    2. Hope
      April 5, 2018

      RPI is used for MPs pensions. Not surprising every other body is changed to CPI except MPs. The same horrible institution that wants to go against the public democratic vote to keep the UK in the EU under foreign control. The swamp needs clearing. It really is a corrupt institution that has no morals or values.

  3. Ron Olden
    April 5, 2018

    One real triumph since the Leave Vote has been the fall in the value of the £ without it having had any more than a minimal effect, prices.

    In the past, the benefits of a devaluation have often been dissipated in higher inflation.

    This fall, when it’s finally all worked through (which most of it already has) will have resulted in no more than a 2% or so additional rise in prices overall. That’s small price to pay for the huge improvement in competitiveness its’ gifted us.

    Basically the businesses who sell into the UK have had to accept lower margins. I myself thought the threat of higher inflation was overstated, but I didn’t expect it to have been as negligible as this. The inflation rate barely penetrated the Government’s target range, and then only for a very short time.

    This almost ‘inflation free’ devaluation has made a huge contribution to the long hoped for, but never delivered, rebalancing of the UK economy.

    The fall in the value of the £ has, on its own, been enough to completely cancel out the effects of any tariffs the EU can impose. And if required it can fall a but more equally benignly.

    In an age of floating Exchange Rates, WTO limits on what can and cannot be done, and a globalised economy with things being traded all over the place via various different routes, tariffs are not the nuclear weapon they used to be.

  4. agricola
    April 5, 2018

    I look forward, to the reduction of retail food prices once we can begin buying from the rest of the World.

    1. Lifelogic.
      April 5, 2018

      Not just food also clothing and much more. But not with the dire transition deal that T May seem to want to sign up to!

      1. Hope
        April 5, 2018

        LL, it,I still not,a,transition, it is an extension as a vassal state. The freedoms that should flow from leaving no the,EU, borders, laws ,waters and fishing stocks and money allowe dto be,kept under EU, control.

        The line by line examination of the divorce bill promised by May as she claimed the taxpayer would expect was timesed by five now at £100 billion plus add ons! Mass immigration plus the population of another country now
        allowed when May promised controls during the extension, ECJ now applying for an undefined period, the U.K. Having no say whatsoever over our fishing stock after we left! We might get consulted about what is going on in our territorial waters! May already implying the punishment extension might slip! She also wants to give our money away for more EU issues under the secret KitKat policy to hide from the public! Does this sound in keeping with Brexit means Brexit or you have to believe in Brexit to deliver it, or I want to be straight with the public, moreover is there anthing of her Lancaster speech or red lines left? Too many failures to be an accident, too many broken pledges/ red lines to reach any other judgement than she lied and you cannot believe a word she says. No country would give away their freedoms of sovereignty for any trade deal which she has already done for only the opportunity to talk about a trade deal.

    2. Mark B
      April 5, 2018

      Not if we remain in the Customs Union we won’t.

  5. Lifelogic.
    April 5, 2018

    The largest living expense for most people, by miles, is the cost of our bloated government with the absurdly high levels of taxation and the tax complexity we current suffer. Yet despite this we still have appalling roads, poor transport, a dreadful criminal justice system, policing (that has largely given up), a dire health services, poor schools, no sensible border controls, an absurd planning system, endless worthless degrees and even sensible refuse collection is beyond them.

    We also still have the state sector paid when pensions are included about 50% more than the private ones. With nearly all still getting DB pensions that the private sector can largely no longer afford, after all the tax they have to pay to cover the state sector ones that is.

  6. Adam
    April 5, 2018

    Each human action causes an equal & opposite reaction, resulting in what we demand & produce at commercial price.

  7. Bryan Harris
    April 5, 2018

    This cannot be good for our high street, which we are in grave danger of losing, thanks to online competition and excessive taxes that are faced by small shops…. Time the government awoke to this, and made it possible for all shops to make a reasonable profit from their trade..
    We have already lost so many high street names – One might suspect that this is an agreed policy by government to wipe out the high street, but where will it lead….

    My shares in Debenhams are unrealistically low, and other companies that supply food and raw materials are suffering, not only because of government policy, but being in the EU has not helped them one bit!

    1. Lifelogic.
      April 5, 2018

      The war on motorist parking near the shops plus excessive rates and the internet competition are killing high street retail. Many shops need to become residential flats and houses. They cannot all become cafes, restaurants, hair salons and nail bars.

      1. Bryan Harris
        April 6, 2018

        Yes – we want some real life in our town centres – a mix of shops, homes, and food suppliers – why are greedy councils making that so hard…..?

        A lack of imagination, while pursing money increasing schemes that only work until shops begin to close… are surely to blame

  8. Caterpillar
    April 5, 2018

    ERI effect also shows in PPI. If increase continues to same level as early 2015 then cost push effect might continue to alleviate. That said if ERI does not strengthen much further then the capacity and wage issues will become larger before CPI is back to target. Moreover whether if it is the expectation of a rate hike that is driving the ERI increase then something will have to be delivered.

  9. Epikouros
    April 5, 2018

    Apportioning blame or success on a particular action tends to be inaccurate as not all the factors that affect that action are identified. Either through lack of information or by design. The latter being the the most common culprit as we like to cherry pick so that we can set/control the narrative. Remainers, the left and progressives are particularly guilty of using that tactic or if that is not available calling foul repeatedly and continuously.

    Deflation that bête noire of government, the BoE and in which the public are brainwashed into accepting as being unacceptable is in fact very good news for the public as consumers. For government and private debt not such good news hence the reward for excessive spending for all is to keep inflation as high as government can get away with. It seems a silly way to run monetary policy as it signals that bad behaviour is good and good behaviour is bad but then that type of perverse thinking is endemic in our society and most of our decisions are arrived at in the same way.

  10. ian
    April 5, 2018

    Commodity prices are near a 10 year low, and company are moving away from cheap labour to automation, so the ones who can afford automation are looking at transport costs and location. If the Uk had cheap electric and a good transport system, factories would grow like mushrooms, that what the US is trying to do.

  11. Edward2
    April 5, 2018

    There should be two inflation measures.
    One for prices in the competitive private sector and the other prices in the State sector.
    I continue to see rises in taxes and charges at national and local government level and stable or falling prices elsewhere.
    The Treasury then acts negatively to keep inflation within target yet their tax rises and are the main cause.
    Car tax up
    Insurance premium tax up
    Council tax up
    And many more I could mention.

  12. Iain Gill
    April 5, 2018

    prices falling due to new entrants to the market, pushing a cheaper option, Lidl and Aldi mainly, and the others being forced to adjust prices to remain in the competition.

    something that we could badly do with in healthcare, and other parts of the economy badly managed by the public sector

    internet sector is often using tax fiddles, and avoiding paying UK tax whenever possible, hardly a balanced good for the economy

  13. Kipping Beauty
    April 5, 2018

    The rate of plastic bag pollution in UK seas has reduced. I can sleep a good night’s sleep at last.

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