Inflation in the UK is expected to fall back after industry figures showed the rising price of groceries eased in July, as more shoppers turned to supermarket loyalty cards amid the cost of living crisis.
The annual pace of grocery price growth cooled to 14.9% over the four weeks to 9 July, down from 16.5% a month earlier, according to the retail industry data provider Kantar, dropping to the slowest annual rate of growth since Christmas.
Raising hopes for a broader easing of pressure on households, the snapshot comes ahead of official figures on Wednesday that are expected to show the UK’s headline rate of inflation resumed a downward path in June after remaining unchanged at 8.7% in May.
City economists are predicting inflation as measured by the consumer price index fell to 8.2% last month, helped by lower petrol prices and a slowdown in the pace of growth for food, drink and other basic essentials. However, prices remain high and are still rising at a much faster pace than they have done historically.
The Bank of England is widely expected to increase interest rates for a 14th consecutive time at its next policymaking meeting in August, adding to the headache for mortgage holders, amid concerns over UK inflation sticking at the highest rates in the G7.
The chancellor, Jeremy Hunt, suggested the latest Kantar figures showed grocery price inflation should continue to decline over the coming months.
“Food inflation was driven by the global cost of energy rocketing and supply chains being hit. Yet consumers should share the upside as both issues unwind, and we’re watching closely to make sure they do. Hopefully that’s what we’re starting to see.”
Hunt has held meetings in Downing Street with supermarket bosses in recent months amid efforts to apply pressure on the retail industry to pass on lower wholesale costs to consumers, while opposition MPs and unions have accused retailers of profiteering.
Hopes are rising that inflation could cool in the coming months, helped by falling energy prices and a slowdown in the rate of food price growth. After a dramatic rise in borrowing costs in recent months, figures from the data provider Moneyfacts show average two-year and five-year fixed-rate mortgage costs remained unchanged for a second day in a row.
Tim Steiner, the boss of the online grocer Ocado, said “we are definitely over the worst” on inflation and the supermarket industry was “working hard to keep price rises to a minimum”.
However, prices remain high after the sharpest annual rise in food and drink costs since the late 1970s, and are likely to continue rising, albeit at a slower pace. Steiner warned that wages, energy bills and interest rates would continue to push up costs for his business.
Ocado said shoppers had been putting fewer items in their baskets and shifting to cheaper options to offset inflation, leading to just 5% growth in sales revenue at its retail arm in the six months to 26 May, well behind the industry-wide rate of inflation during that period, say analysts at Kantar.
Shares in Ocado rose by 16% – making it the top riser on the FTSE 100 – as the company fared better than expected, despite half-year losses widening to nearly £290m, with the retail arm falling £2.5m into the red compared with a £31m profit a year before.
Fraser McKevitt, the head of retail and consumer insight at Kantar, said: “Grocery price inflation has now been falling for four months in a row. That will be good news for many households although, of course, the rate is still incredibly high.
“The change comes as spending on promotions has gone up for the first time in two years, now accounting for just over a quarter of the total market … One of the biggest shifts we’ve seen in this area is retailers ramping up loyalty card deals such as Tesco’s Clubcard prices and Sainsbury’s Nectar prices.”
Overall sales of groceries for consumption at home rose by 10.7%, behind the level of inflation, indicating that fewer items were put in baskets.
“It’s clear that shoppers have dramatically changed their behaviour to combat inflation, whether by trading down to cheaper products or visiting different grocers,” McKevitt said.
The discount chains Aldi and Lidl have been the main beneficiaries of changing behaviour. Aldi is the fastest-growing grocer, with sales up by 24% in the 12 weeks to 9 July. It holds 10.2% of the market, up from 9.1% a year ago. Lidl increased its market share, up by 0.7 percentage points to 7.7% after sales increased by 22.3%.
Sainsbury’s was the fastest growing of the traditional supermarket chains with sales up 10.7%, in line with the total market. Morrisons and Ocado trailed the pack but the former recorded growth of 2.5%, its best showing since April 2021 and its eighth month in a row of improved performance.
