Food prices fall again

High street price cuts deepened last month (February) as fresh food costs dropped at the fastest pace for at least eight years, according to industry figures that will reinforce expectations the UK is headed for a brief period of deflation. Food prices fell for the second consecutive month, leading to 0.4% deflation in the shops.

The British Retail Consortium reported deflation in overall shop prices for the 22nd consecutive month, as prices in February fell 1.7% on a year ago. That followed deflation of 1.3% in January.

Non-food products again drove the overall drop, helped by clothes discounts and special offers on furniture and DIY items, the BRC said. Non-food items were down 2.5% on the year, the biggest drop for eight months.

But food prices also fell in February, against a backdrop of falling commodity prices; and as a price war between established supermarkets and the discounters led by Aldi and Lidl continues to rage.

BRC director general, Helen Dickinson predicted more discounting ahead.

With milk, cheese, eggs, vegetables and convenience food all cheaper than they were a year ago, fresh food prices were down 1.2%, the deepest deflation since the BRC shop price index began in December 2006.

The news of sharper shop price falls follows official figures showing UK inflation fell to the lowest level on record in January at 0.3%. That much wider measure of price movements in the UK economy from the Office for National Statistics showed fuel and food prices were behind the slowdown in inflation.

Economists say there is little sign that low inflation is becoming entrenched, but that in coming months the UK will probably slip into its first bout of negative inflation in more than half a century.

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