• The British Retail Consortium (BRC) Shop Price Index for May 2024 showed a decline to 0.6% year-on-year, falling short of the expected 1.0% and down from April’s 0.8%.
• BRC Chief Executive Helen Dickinson commented on this drop, noting that shop price inflation has returned to more normal levels.

Key Points:

• Inflation Dynamics: Ambient food inflation remains high, particularly for sugary products due to elevated global sugar prices. In contrast, non-food retailers have cut prices on items such as furniture to stimulate consumer demand, which has been particularly sluggish for big-ticket items.
• Consumer Sentiment: There has been “some improvement” in consumer sentiment, suggesting a cautious optimism among shoppers.
• Event-Driven Discounts: Retailers are also offering discounts on TVs and other audio-visual equipment in anticipation of the upcoming Euros, which is contributing to the lower inflation figures.

Implications for Bank of England Policy:

With shop price inflation normalizing, the Bank of England may consider rate cuts sooner than previously expected. The market is currently pricing in the possibility of rate cuts in June or August. This potential shift in monetary policy is influenced by the current inflation trends and improving consumer sentiment, which could help support economic activity in the near term.