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UK food-price rise slows in July, but relief may be temporary

Food-price inflation in the U.K. eased in July, a report released Aug. 2 showed, but the decline may be short-lived as the effects of a weaker British pound continue to play out.

An index of shop prices compiled by the British Retail Consortium, or BRC, and consumer research company Nielsen indicated that food-price inflation slowed to 1.2% year over year in July, down from 1.4% in June as well as May. The May-July index readings are the highest since January 2014.

Fresh food prices increased 1% year over year in July, down from 1.4% in June, while prices for ambient foods jumped 1.6% year over year in July from 1.5% in June.

Prices for imported goods have escalated since June 2016, when the British pound plunged in value against major currencies after the U.K. voted in a referendum to leave the European Union. The British currency has retraced some of its losses, but it is down about 11.7% against the U.S. dollar since the poll.

Higher prices fed through into fresh foods sooner due to shorter stock cycles, so the depreciation impact in this area was now subsiding, BRC CEO Helen Dickinson said in a statement. "However, the upward pressure on food inflation has not entirely disappeared: Ambient food prices are still affected, and as seasonal pricing dynamics play out, we could see fresh food inflation pick up again," she added.

Nonfood prices in July fell 1.5% on a year-over-year basis compared with a drop of 1.4% in June. Dickinson said stores were competing to keep prices low for consumers, but there was "a limit to how much retailers can absorb into their margins."

In total, shop price deflation in July was 0.4% year over year, compared with 0.3% in June.