After years of consumers benefiting from fierce competition between the big supermarkets driven by Aldi's rapid expansion, the drought across much of the country is forcing Coles and Woolworths to pull back on their discounting of fresh food.

A report by UBS retail analysts Ben Gilbert and Aryan Norozi released this week suggests that pressure to push up fresh food prices will continue, while competitive discounting between the nation's two major supermarkets will decline.

Will inflation return? A new report suggests it might. Credit:Louie Douvis

The report found the rate of industry deflation has eased off in the most recent quarter, largely due to a surge in the cost of fresh food, including meat and dairy produce.

Figures reveal prices fell 1.3 per cent at Woolworths in the quarter ending June 30, compared with a 0.6 per cent drop in the September quarter.