By Daniel Hunter

Overall shop price inflation fell to 1.4% in January from 1.7% in December. Food inflation fell to 3.7% in January from 4.2% in December. Non-food inflation fell to zero from 0.3% in December.

"With the impact of the 2011 VAT rise finally gone from annual comparisons these figures show how retailers are holding down prices for customers despite a range of upward pressures," Stephen Robertson, British Retail Consortium Director General, said.

"Even though retailers are facing higher transport and property costs, overall non-food prices are exactly the same as a year ago. Within that, clothing, furniture and electricals were all cheaper than 12 months ago with the price of electrical goods falling at its fastest rate for three years.

"Food price inflation continues to come down and is now the lowest it's been since July 2010 thanks to discounting and cheaper commodity costs working through.

"Further falls in the official rate of inflation, which are expected during the coming months, should be a boost to customers' budgets and, crucially, should help to improve consumer confidence. For there to be any significant improvement in retailers' fortunes in the coming year it's essential that people feel better about their personal finances and become more willing to spend."

Mike Watkins, Senior Manager, Retailer Services, Nielsen said the data shows shoppers are still looking to economise.

"Shoppers are indicating that they still need to economise on spending in 2012," he said.

"With retail sales after Christmas off to a slow start, food retailers in particular continued to offer savings in January with price cuts and promotions on everyday items being used across the industry. These initiatives as well as the underlying slowing of inflation and the annualisation of the VAT increase, are bringing shop prices down and closer to the historical levels we have seen over the last few years."

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