Food prices show deepest deflation for more than a year

Household budgets have received a boost with the deepest deflation in food prices for more than a year.

Overall shop deflation of 2% in June was deeper than the 1.8% decline in May, and lower than the 12-month average of 1.8%, according to the BRC-Nielsen Shop Price Index.

Food deflation deepened further in June, falling to 0.8% from 0.3% in May, while fresh food reported a further acceleration from 0.8% in May to 1.5% - the deepest rate since September last year.

Shoppers have now been able to fill their baskets and pay less for their goods than the year before for 38 months in an "extraordinary" run of overall shop price deflation.

British Retail Consortium chief executive Helen Dickinson said: "This month's figures show overall shop prices falling once again. This extraordinary 38-month run of deflation has undoubtedly been good for consumers.

"While it has been driven largely by falling prices for non-food items we have, from time to time, seen food in deflationary territory as well - which provides the real boon for household budgets.

"June was one of those months with food prices falling by 0.8%, the deepest deflation in food (fresh and ambient) for over a year.

"While the good news for household budgets continues, prices in store will eventually rise again. However, the time it takes for any price increases to make a reappearance will depend on a combination of factors including the future value of the pound, commodity prices and any eventual impact of the Brexit vote on input costs."

Mike Watkins, head of retail and business insight at Nielsen, said: "Whilst changes in the economic landscape are anticipated next year, the current focus for the industry is the continued deflationary environment.

"This is good news for shoppers who benefit from falling prices but is added pressure for retailers as they balance increased costs from the national living wage and investment in multi-channel, with volatile consumer demand.

"A return to inflation is not expected just yet so it's business as usual over the summer months and encouraging shoppers to keep spending is the priority."