This year it is not just Grinches that can go on a Christmas shopping spree without having to part with too much of their hard earned cash. Thanks to the supermarket price wars the feast, pudding and roast beast, is getting cheaper. The best value high street purveyors of turkey, spuds and brandy butter are offering their wares at double-digit percentage point discounts this year compared to last. Overall, a bargain meal for eight will cost a more than reasonable £2.53 per head, a 4.93% decline from 2014.
The deflationary effects of cost cutting by supermarkets is estimated to have dragged overall food and drink prices 2.7% lower over the year according to research by the British Retail Consortium/ KPMG Sales Monitor. The overall cost to the grocery industry is estimated at more than £1.5 billion. Good news for shoppers has been bad news for shareholders with both Tesco and WM Morrison – two of the top three listed supermarkets by market share – sharply underperforming the UK’s FTSE100 index.
The price cutting is hurting and may not be sustainable in the long run. Food prices are also volatile, depending on weather conditions, disease, pests and transport costs. The most inflationary item in our Christmas basket was Brussels sprouts. They are at a premium as many have been rotting in their fields (much to the joy of children) due to an unusually wet October. This year we can enjoy a cut price feast, but that does not mean we will avoid a nasty bout of inflationary indigestion in 2016.
David Hooker – Insight Investment, a BNY Mellon company