THE falling cost of crude oil and raw materials filtered through to shop prices last month, says the British Retail Consortium (BRC).
Overall shop price inflation slowed to 1.1% in June, down from 1.5% in May, its lowest level in two-and-a-half years, while food inflation fell to 3.5% from 4.3%, the BRC said.
The slump is caused by crude oil prices falling by a quarter on three months ago, and food commodities such as coffee and sugar also descending sharply.
In addition, weak demand and aggressive competition continues to drive retailers to put on discounts and special deals, further lowering the cost of goods.
Mike Watkins, senior manager of retail services at Nielsen, a retail measurement company, said: “Prices continue to fall across retail stores, which will be welcome news for the many households needing to make savings on bills and bigger-ticket items.”
Food retailers have seen slow growth due to unpredictable weather, but analysts expect that a summer jam-packed with events such as the Olympics, combined with the fall in inflation, should give a boost to shoppers to spend.
The price of non-food goods such as clothing and footwear, DIY, and hardware, dropped by 0.3% in June compared to 0.1% in May.
Fresh food prices increased by 3.2% in June, compared to 3.9% in May, driven by lower rates for vegetables, oils and fats, milk, cheese and eggs, which offset a rise in the rate of inflation for fish and convenience food.
Food with a long shelf life showed a marked lowering of rates, falling to 3.9% in June from 4.8% in May, with biggest falls in alcohol, breads and cereals, jams and chocolate.
However, there are fears of a shift to higher levels of inflation, with the price of wheat and grain rising to 15% and 11% respectively between June 18 and July 2.
This comes after the US Department for Agriculture, a country which supplies more than half of global corn exports, lowered its forecast for corn production due to hot and dry weather conditions, and Russia announced a 10% cut in its grain forecasts.
The outlook for these crops is critical to global food prices, and any significant disruption in supply would be likely to cause a rise.
The price of oil has fallen by a quarter over the last three months, and the delay in the 3p rise in fuel duty – due to come into action in August – acted as a boost to retailers and consumers.