• Overall shop prices reported deflation for the ninth consecutive month in January, accelerating to 1.0% from 0.8% in December.

• This is the deepest level of deflation since the series began in December 2006.

• Food inflation slowed to 1.5% from 1.7% in December.

• Non-food reported annual deflation of 2.7% in January from 2.3% in December.

Helen Dickinson, British Retail Consortium Director General, said:

"Shop prices are falling at their fastest rate for 7 years, a new record for our data. January is always a key month for sales and promotions but discounts have been deeper and more widespread than last year and we are seeing this trend continuing. Our figures show that there have been particularly good deals to be had in clothing, furniture and electrical items this month as retailers prepare for their new collections.

"Hard pressed families will also have benefitted from the lowest levels of food inflation in almost four years. Our food retailer members have managed to keep prices low again and with relatively stable commodity prices at the moment as well, and forecasts for commodities quite upbeat, we may continue to benefit from this for some time yet.".

Mike Watkins, Head of Retailer and Business Insight, Nielsen, said:

"The start of 2014 has seen a continuation of both slow retail growth particularly in food, and a continuation of slowing inflation. With the first few weeks of January a time when many households take stock of personal finances, the fall in shop price inflation will be a welcome boost for consumers."

Overview

The BRC-Nielsen Shop Price Index (SPI) reported annual deflation of 1.0% in January up from 0.8% in December, the deepest deflation rate since the series began in December 2006. Food inflation slowed further to 1.5% from 1.7% while non-food deflation accelerated to 2.7%.

Food inflation is now at its lowest level since March 2010, when the index recorded its lowest inflation rate in the seven year history of the survey. Fresh food inflation accelerated slightly in January to 1.6% from 1.5% in December. This was offset by the deceleration in inflation in ambient food, falling to 1.3% in January from 2.0% in December. Inflationary pressure eased in the milk, cheese and eggs, convenience foods and vegetable categories while non-alcoholic beverages and bread and cereals pushed ambient inflation to an eight-month low.

Supermarket shelves (PD)While inflationary pressure in the supply chain remains benign, deep and widespread discounts have come at the expenses of profit margins as retailers fight over market share. The recent release from the Office for National Statistics on input prices showed a further decline in home-produced food, falling 5.9% from the 3.4% decline in the previous month.

Deflation within non-food has been deeper than 2% for seven consecutive months. With the rate of deflation reaching 2.7%, this is the deepest rate since the series began in December 2006. Five of the seven sub-categories reported annual deflation, with clothing and footwear, electricals and furniture and floorcoverings being joined by books, stationery, and home entertainment, which reported deflation for the second time in three months. DIY, gardening and hardware entered deflationary territory in January. It's worth noting that the survey period falls in a period of sales and discounting coupled with consumers taking stock of their personal finances after the festive period.

The Thomson Reuters/CoreCommodity CRB Index, a weighted commodities benchmark, has fallen by seven per cent in the 12 months to the end of the survey period.

The United States Department for Agriculture (USDA) forecast world wheat production in 2013/14 to reach 712.7 million tons, up 1.2 million this month after soaring by 5.0 million tons last month. This latest increase puts 2013/14 global output further ahead of the previous record year in 2011/12, now surpassing it by 15.4 million tons. The largest increase this month is for China, up 1.0 million tons to 122.0 million. With no significant change expected in global wheat consumption, the increased supply of wheat is likely to provide downward pressure on prices. Farmers Weekly reported a year-on-year price fall of 28% for feed wheat, with similar trends reported for other cereals including milling wheat, feed barley and oilseed rape.

The official measure of inflation, the Consumer Price Index (CPI), grew by 2.0% in the year to December 2013, down from 2.1% in November. This is the lowest official inflation rate in just over four years. The largest contributions to the fall in the rate came from prices for food & non-alcoholic beverages and recreational goods & services. The overall price increase for gas and electricity in December 2013 was slightly larger than the rises a year earlier resulting in a small upward contribution to inflation. This signals that potential inflationary pressure among energy prices may still filter through to consumers.

With inflationary pressure remaining muted, shop prices are expected to remain stable in the GfK's UK Consumer Confidence Index rose in January to -7 from December's -13, its best reading since September 2007, around the start of the financial crisis. GfK's survey showed increases across all of its measures of confidence, including a strong rise in consumer expectations for the economic situation over the next 12 months.

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