UK shop prices fell 2% year-on-year in August, compared with a 1.6% year-on-year fall in July, according to British Retail Consortium (BRC).
The fall in prices was driven by promotions from retailers as well as a drop in the cost of oil.
Food price deflation hit a record low of 1.1% in August, compared to 0.8% in the previous two months, representing the biggest year-on-year fall since when the index started in 2006. Fresh food prices dropped 1.5% and ambient food prices fell 0.6%.
Non-food deflation reached 2.5% in August, up from 2.2% in the previous month.
”The share of spend on food goods on promotion continued to fall, down to 28%, as retailers move to permanent price cuts instead of multi-buy and other promotional offers, ” the BRC said.
Helen Dickinson, chief executive of the BRC, believes prices will rise in the coming months when increased costs are passed to consumers.
“Lower prices this August compared to last were driven by a combination of continuing promotional activity, softening oil prices and a global supply glut of wheat weighing on food prices,” said Helen Dickinson.
Adding: “The devaluation of sterling in wake of the referendum will put upward pressure on shop prices.
“But that’s likely to take several months to properly feed through, given that retailers won’t feel the brunt of the cost increases until existing contracts with foreign suppliers come to an end.
“Even then, retailers will have to make a decision about when and how much to pass onto consumers.
Given the strength of competition in the market, and if the economy softens in line with predictions, any pass through may be more limited than implied by the exchange rate movement.”