Annual inflation fell to 0.5% in December, helped by another fall in food prices, according to British Retail Consortium (BRC)-Nielsen Shop Price Index.
Year-on-year inflation dropped from 2.5% in November, the index showed, while annual food inflation dipped from 7.1% to 6.2%.
Fresh food inflation fell to 6.8% and ambient food to 5.2%.
Retailers are continuing to absorb “a degree of inflationary pressure”, the BRC and Nielsen said, as the Producer Price Index of output prices in November rose 5.1% year-on-year.
The cost of food should continue to fall throughout the year because operating costs and the price of energy are falling, the duo added.
“Further, as the recession deepens in 2009, the high levels of promotions will continue as competition in the grocery industry intensifies as supermarkets scrap for market share,” the report said.
BRC director general Stephen Robertson added: “Food inflation fell again – to its lowest level since last May, due to lower oil and commodity prices.
“It’s clear retailers are holding down shop prices at a time when many of their own costs are increasing.
“The government shouldn’t be adding cost burdens, such as record high business rate increases, at a time when margins are being severely squeezed.”
Senior manager of retail services at Nielsen Mike Watkins said: “The acceleration of discounting by retailers in the run-up to Christmas, particularly in non-foods, also reduced prices and food inflation continues to slow from its peak in August.”
Ambient foods are more susceptible to changes in VAT, the BRC said, so inflation on these items is at its lowest level since June last year.
The BRC has said that overall picture of retail trading for the Christmas period will not be pretty.
Yet this week Skillsmart Retail suggested there good prospects for youngsters in the UK retail sector despite the economic environment, after conducting a poll.
