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The interesting pattern in the latest retail sales figures is the trend in implied deflator over recent months. Naturally, this measure is narrower than the official inflation numbers and calculated on a different basis (returns from retailers, rather than survey). What it has shown is a sharp reversal in the pace of high-street inflation, from 3.8% (for non-fuel sales), to 1.8% in the latest release. It’s more than likely that, with the VAT increase dropping out of the calculation in the January numbers, we will move into a period of high-street deflation, at least on the retail sales measure. Indeed, looking at non-store retailing (catalogue but also internet sales), we are already there, with the deflator in this area now at -0.6%.
Naturally, this is good news for those who have seen real incomes squeezed over the past couple of years, but it’s also a result of pretty tough trading conditions which have seen several high-street names go into administration this month on the back of disappointing retail sales numbers. Therefore, the better inflation picture on the retailing side is not without costs in terms of jobs and also margins on the part of those remaining.
