Food bills fall for the first time in years

Price wars benefit supermarket shoppers

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Woman hand close up with shopping cart in a supermarket walking trough the aisle.

After eight years of rising food prices, grocery bills are now falling, according to the latest figures from the Office for National Statistics (ONS).

The family shop is now 0.6 percent cheaper than this time last year - the first time prices have dropped since March 2006. Inflation generally has fallen, with the Consumer Price Index showing that the price of all consumer goods rose by just 1.5 percent in the 12 months to May.

It's good news for consumers - and for homeowners, as the figures will reduce pressure on the Bank of England to increase interest rates before the end of the year.

The biggest price falls have been for bread, cereals, meat, vegetables and soft drinks, although the ONS says it's seem falling prices across many other product categories. Clothing and footwear prices, too, have declined.

The fall in the cost of groceries is the result of a continuing price war by Tesco, Asda, Sainsbury's and Morrisons - all under pressure from discounters such as Aldi and Lidl.

In recent months, all the major supermarkets have promised big cuts in prices. Morrisons, which has been particularly hard-hit by the rise of the discounters, recently pledged to cut prices on 1,200 everyday essentials by an average of 17 percent. "We are cutting prices not corners," says chief executive Dalton Philips. "We are making great food even more affordable and, in doing so, giving more reasons for customers to shop with us."

The latest ONS figures echo a new report from the British Retail Consortium and KPMG, which found that UK spending on food in the last three months has dropped by 0.2 percent - the first fall since 2008.

"While non-food retailers are seeing steady sales growth, the grocers appear locked in a race to the bottom, imposing price cut after price cut to maintain their sales volumes," says KPMG head of retail David McCorquodale.

"The deflationary effect of these prolonged discounting campaigns, whilst good for consumers, is feeding through to the grocers' margins and share values. The constant price matching brings into question the long term value of the grocers' brands and positioning, but in the short term is providing the UK consumer with plenty of options."