According to the latest British Retail Consortium-Nielsen Index, shop prices fell for the 22nd consecutive month in February down 1.7 per cent compared to a 1.3 per cent dip in January.
Food prices fell 0.4 per cent compared to 0.5 per cent in January, the first time the sector has seen a second consecutive monthly dip, with fresh items edging down to their lowest level on record.
Rising competition and falling input costs, mainly raw materials such as coffee and cotton, were the main drivers. However oil prices, which have halved in recent months, started to edge up again in February now costing around $60 a barrel.
Non-food deflation was 2.5 per cent compared to a 1.8 per cent fall last month with furniture, carpets and clothing prices all dropping.
BRC director general Helen Dickinson said: “Those shoppers enjoying the January sales could continue into February with great bargains on the high street, especially for clothing. It was also worth a visit to the local DIY store or updating some house furniture with good promotions found in both categories.
“In food, milk, cheese, eggs, vegetables and convenience foods are all cheaper than they were a year ago. On oil, it’s too early to determine whether this upward trend will continue and what effect this will have on the cost of production.”
However she expects further price cuts in the weeks ahead.
“The fiercely competitive market will see retailers continually responding to their customers with keen prices and promotions to maintain market share,” she added.
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Mike Watkins, head of retailer and business insight at Nielsen, said: “Since the start of the year, we have seen some very competitive pricing across both the food and non-food channels and this is helping to keep prices low for shoppers. With many commodity prices still falling, if shoppers can be encouraged to spend more, then retailers will be looking for volume sales increases over the next few months. The challenge for food retailers is that in-store promotions also remain close to an all-time high at 33 per cent of sales and the use of vouchers or coupons continues making consumer demand rather unpredictable. Even so shoppers are seeing a double benefit of price cuts and promotional offers.”
The BRC warned that the UK was now “a step closer to deflation in the wider economy”.
The headline rate of inflation, the Consumer Price Index, fell to 0.3 per cent in the year to January from 0.5 per cent in December.
Bank of England governor Mark Carney has said inflation was likely to turn negative this spring and remain close to zero for the remainder of the year.