Retail food prices rose at the lowest rate for three years last month, as supermarkets continued their battle to attract price-conscious shoppers.

Overall shop price inflation slowed to 1.2% in March from 1.7% in February, while food inflation fell from 1.3% to 1.2% over the same period, the British Retail Consortium-Nielsen Shop Price Index showed.

Fresh food inflation rose to 0.5% in March, after reporting annual deflation for the first time in the survey’s history in February. The main inflationary pressure was from fruit and convenience food, while vegetables applied “considerable” downward pressure and the milk, cheese and eggs category was broadly flat.

“The competitive battle is even fiercer than usual as retailers fight it out to overcome the reluctance of customers to spend caused by pre-election uncertainty,” Stephen Robertson, BRC director general, said. There had also been price promotions in the run-up to Easter and moves by retailers to offset restoration of the standard rate of VAT to 17.5%.

Mr Robertson said falling shop price inflation would be welcome relief for consumers facing a sharp rises in other living costs, such as fuel, but the trend was likely to be less popular with those farmers and suppliers feeling squeezed by the dominance of the supermarkets.

The BRC said a number of inflationary factors were in the background, including the potential for improved global economic conditions to generate a further increase in commodity prices. According to the Thomson Reuters/Jefferies CRB index, which measures the price movements of a basket of commodities, there has been an increase of more than 30% in the past 12 months. How much of this increase makes its way through to shop prices is uncertain though.

“With significant fiscal and monetary policy challenges ahead and while a sustained economic recovery remains far from assured, a degree of spare capacity in the economy will continue to bear down on prices in the medium-term,” the BRC concluded.