The FTSE 100 was up 0.2% at 7,499 in early afternoon trading on Friday, as oil prices fell to $116 per barrel and retail sales slumped on the back of spiking inflation.
According to the Office of National Statistics (ONC), retail sales reportedly declined 0.3% in February as inflation hit a 30-year record of 6.2%.
Inflation is currently anticipated to rise to 7.2% in the coming months and peak in winter at 8.7% in 2022, meaning retail sales could deteriorate further this year.
“Prices have been shooting up over the last three months, whilst inflation currently stands at 6.2% – looking at the difference between volume and value over the three-month period suggests an increase of 7.2% and definitely rising,” said said Danni Hewson, AJ Bell financial analyst.
“Until now, retail sales have proved remarkably resilient, still 3.7% up on where they were back in February 2020.”
The prominent value retailers are expected to take the brunt of rising costs, with razor-thin margins set to see suppliers potentially faced with little choice except to raise their prices at the expense of the consumer, or face margin pressure.
European value brand B&M experienced a fall of 2.9% to 563.4p per share.
Housebuilders and the Energy Price Cap
The market is also bracing for the rising price of oil, which some analysts predict could reach heights of $200 per barrel.
The energy price cap is scheduled to rise £693 in April, and companies will need to decide between absorbing the cost or passing it onto customers.
“People can’t spend what they don’t have, and that slow creeping erosion of living standards is about to get hit by an energy tsunami,” continued Hewson.
“Budgets will be reassessed and discretionary spend pared back. Retailers will have to make their own calculations about whether they can absorb the price pressures also assaulting them or to pass them on and hope that won’t totally squash sales volumes.”
Given retailing shares have already taken a big hit on expectations of higher inflation so far this year, it is now the turn of Housebuilding shares to feel the pressure of higher inflation. The FTSE 100’s housebuilding all fell heavily in the immediate reaction to poor retail sales at a time they are facing higher construction costs.
FTSE 100 Risers
The major oil companies remained steady, with Shell rising 0.8% to 2,099p and BP falling slightly by 0.1% to 388.5p in early afternoon trading on Friday.
The top risers on the FTSE 100 included Rolls Royce with a 3.2% increase to 95.2p after the company stepped in to offer the UK supplies of nuclear energy as the country cut ties to Russian oil reserves.
JD Sports Fashion saw a rise of 2.7% to 151.7p on the back of supplier Nike’s rising shares, which were up 0.8% at $133.2. Higher end retailers are expected to avoid the worst impact of rising prices.
Pershing Square Holdings climbed 2.5% to 2,8650p.
FTSE 100 Fallers
The market’s top fallers were led by Airtel Africa with a 10% slide to 139.7p after the telecommunications company announced the sale of its Malawian passive infrastructure firm to Helios Towers for $55 million.
Persimmon continued its decline by 3.4% to 2,117p on the back of rising material costs and concerns around the cost of living crisis. Taylor Wimpey fell 3.2% to 132.5p and Barratts fell 3%.
Reckitt Benckiser shed another 4% to trade just above key support at 5,400p. A break of the 5,400p level could see shares head down to 5,100p, the lowest point Reckitt’s traded at during the sell off at the beginning of the pandemic.