Discounting Drive Has Knock-on Effect on Inflation
Whilst the fall in headline inflation reflects the continued easing of fuel and energy prices, it is also a consequence of the deep discounting drive undertaken by retailers in the lead up to Christmas, which saw prices of goods drastically cut, said KPMG’s head of retail on the latest UK inflation figures from the Office for National Statistics.
“Retailers were forced to discount earlier and more deeply than usual to drive demand as they faced the pressure of a slow build up to the peak weeks of just before and after Christmas,” Helen Dickinson said.
“Although December’s retail sales performance was better than many had predicted, achieving these sales came at a price. Retailers’ discounting has hit their margins hard, causing the overall health of the sector to deteriorate over the last quarter of 2011 as a whole,” she added.
Retail health is now considered to be poorer than it was in the depths of the 2008 banking crisis and recession according to the KPMG/Ipsos Retail Think Tank.
Dickinson added: “Looking forward we expect significant price competition to continue whilst consumer demand remains weak, and this will have a knock on effect on headline inflation figures.
“Overall headline inflation, which remains above retail price inflation, should continue to fall over the coming months as the VAT rate difference falls out of the year on year comparisons, and energy and petrol prices continue to head in a downward direction.”