Consumers adapt to higher prices by prioritising essentials

interactive investor comments on ONS retail sales.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Although household budgets are feeling the strain of surging living costs at a time when pay packets fail to keep pace with rising prices, retail sales were resilient in July. This is partly due to online sales promotions, which largely contributed to an 4.8% uptick in non-store retailing (predominantly online retailers) last month.

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“However, looking more broadly, sales volumes fell by 1.2% in the three months to July 2022, continuing on the downward trend since last summer. Consumers are increasingly adapting to higher prices by prioritising essentials such as food, and many retailers are trying to absorb the impact of higher costs to help their customers’ cash stretch further.

“Meanwhile, non-discretionary spending continues to wane. Non-food stores sales volumes fell by 0.7% over the month because of a strong fall in second-hand goods stores, particularly antiques stores and auctioning houses, and clothing stores.

“With inflation hitting a new 40-year high last month and expected to hit 13% later this year, another energy price hike and rising interest rates upping borrowing costs, conditions are set to get tougher for consumers. Many will be forced to reshuffle their spending priorities and allocate more of their budget on everyday essentials at the expense of quality of lie boosting spending.”

Key points:

• Retail sales volumes rose by 0.3% in July 2022 following a fall of 0.2% in June 2022 (revised from a fall of 0.1%); sales volumes were 2.3% above their pre-coronavirus February 2020 levels, but down over the past year.
• Looking more broadly, in the three months to July 2022, sales volumes fell by 1.2% when compared with the previous three months; this continues the downward trend since summer 2021.
• Non-store retailing (predominantly online retailers) sales volumes rose by 4.8% in July 2022; feedback from online retailers suggested that a range of promotions in July 2022 boosted sales.
• Automotive fuel sales volumes fell by 0.9% in July 2022, with anecdotal evidence that the heatwave across parts of the UK may have reduced travel and sales.
• Non-food stores sales volumes fell by 0.7% over the month because of falls in other non-food stores (negative 1.5%), and clothing stores (negative 1.2%).