Sales stumble amid high inflation as consumers shift spending priorities

interactive investor comments on ONS retail sales figures.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “There was a loss in momentum in goods spending in May as headwinds from four-decade high inflation and a swift move up in interest rates, upping borrowing costs, hit personal finances.

“What’s more, official estimates for April were overblown and has now been revised down to show these so-called core retail sales increase by 0.4% instead of 1.4% as previously reported.

“The decline in sales in May were led by a 1.6% fall in sales volumes in supermarkets and other food stores, as the price of food soared. Consumers are increasingly making more considered decision about how they spend their money as the cost-of-living squeeze on finances becomes more acute. A recent report on food inflation by research firm Kantar revealed sales at all the big supermarkets are on the wane as shoppers increasingly switch to discounters like Aldi and Lidl and bought more own-label goods in an effort to keep a lid on spending.

“However, other areas of consumer spending remained resilient. Fuel sales volumes rose by 1.1% last month as prices at the pump reach new records daily. The ONS says this uptick may be linked to increased hybrid working and a fall in those working exclusively from home.

“Britons splashed out on clothing - up 2.2% in May, with the summer holiday and social season rapidly approaching. But many feel that now is not the best time to make big purchases such as furniture, illustrated by a 2.3% dip in household goods stores sales.

“The challenge for retailers is to select the right strategy for their business to retain cost conscious shoppers. Companies are grappling with its own soaring costs fuelled by a range of factors including supply bottlenecks and high labour costs. They have to decide how much of this to absorb and how much to pass on to shoppers.

“With inflation reaching a new 40-year high last month and expected to hit 11% this year and the spectre of higher interest rates to tighten the screws on skyrocketing prices, consumers will likely continue to reshuffle their spending priorities and allocate more of their budget on everyday essentials.”

Key points:

• Retail sales volumes fell by 0.5% in May 2022 following a rise of 0.4% in April 2022 (revised from a rise of 1.4%); sales volumes were 2.6% above their pre-coronavirus February 2020 levels.
• In the three months to May 2022, sales volumes fell by 1.3% when compared with the previous three months; this continues the downward trend since summer 2021.
• The fall in sales volumes over the month was because of food stores, which fell by 1.6%; reduced spending in food stores seems to be linked to the impact of rising food prices and the cost of living.
• Automotive fuel sales volumes rose by 1.1% in May 2022, which may in part be linked to increased hybrid working and a fall in those working exclusively from home.