By Daniel Hunter

Overall shop prices reported annual deflation for the second consecutive month in June, falling 0.2% from 0.1% in May. Food inflation increased to 2.7% in June from 2.4% in May. Non-food reported annual deflation of 1.9% in June from 1.5% in May.

"Shop prices fell at their fastest rate since February 2007, building on the downward trend that we saw in May. The deflation is driven entirely by non-food, a reflection that the summer sales are well underway as retailers battle it out to shift stock and compete for customer spending," Helen Dickinson, British Retail Consortium Director General, said.

"The volatile weather also had a part to play in pushing down non-food prices. It's telling that the categories which saw some of the deepest discounting — clothing, footwear, furniture and DIY - were those whose sales were hit the hardest during the lingering cold snap.

"Food inflation has edged up marginally since the near three-year low seen in May, driven by slight increases in ambient and fresh food prices. However, I would expect it to remain fairly stable over the medium term.

"The signs are that retailers are continuing to read conditions well and planning their promotional activity accordingly. With the recent consumer confidence figures indicating an increased willingness to make major purchases, now is a good time to buy big-ticket items at the best possible price."

Mike Watkins, Head of Retailer and Business Insight, Nielsen, said: "Shoppers are indicating that they still need to economise in 2013 so underlying demand remains weak, particularly in non-food where price deflation continues. The story is a little different in food, however.

"After a three-year low point in shop price inflation and a slight recovery in volume growth in the last six months, and with promotion spend plateauing, some seasonal cost price increases are again filtering through to the shelf. If this trend continues, it will set the shoppers` agenda for the next six months and food retailers may need to focus on simple price cuts as well as multi-buys in order to drive footfall and spend."

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