Retailers battle to lure shoppers on tight budgets, resulting in price drops in clothing and footwear for seven months in a row

Heavy discounting on clothing, shoes and electrical goods by duelling retailers helped trigger the fastest fall in prices in Britain's shops in more than seven years last month.

Shop prices overall were 1.7% lower in March than a year earlier, driven down by falls in most non-food categories, but most notably a 12.8% drop in the cost of clothing and footwear and a 4.4% fall in the price of electrical goods. Food inflation also slowed significantly, to 0.8%.

It was the fastest shop-price deflation since the British Retail Consortium/Nielsen index began in December 2006.

Helen Dickinson, the BRC's director-general, said the deflation rate reflected retailers' efforts to attract customers who were carefully managing their budgets. "It's strong industry-wide competition as retailers vie for a share of limited spending capacity that is driving this record-breaking run. Retailers have been responding to their customers with keen prices and promotions to maintain market share," she said.

Prices have fallen in all categories of clothing and footwear for seven successive months, with children's clothing and women's clothing the fastest fallers in March.

Non-food deflation of 3.2% was the sharpest on record, while last month's food inflation number was also an all-time low for the series.

Dickinson said that as 15% of disposable incomes were spent on food and drink among the poorest third of UK households, slowing food inflation reflected "retail's significant contribution to maintaining standards of living".

The consumer price index – Britain's official measure of inflation – has outpaced average wage growth for much of the past five years, dragging standards of living lower. However, inflation has fallen in recent months and is now below the Bank of England's 2% target. It is widely predicted that wages will finally start to outpace inflation later this year, offering some relief to consumers and budgets.

Fresh food prices were the biggest driver of falling food inflation in March, with prices rising by just 0.6% in March compared with 1.5% in February on an annual basis. Lower prices of fish and vegetables and slowing inflation on milk, cheese, eggs and meat were behind the dip in fresh food inflation.

BRC/Nielsen said that there had been some upward pressure on commodity prices since the beginning of the year due to poor harvests in Brazil, the world's top producer of coffee, sugar and orange juice. Meanwhile, a slowdown of cocoa production in West Africa has been attributed to below average rainfall, sending prices up.

The report added: "The prices of corn, wheat and cotton were up in double digits over the last three months. However, such sharp rises remain isolated and, although recent price movements need to be monitored carefully, the global outlook for rising commodity prices remains modest."

Dickinson said support from the government on other costs facing retailers, such as business rate reform and the recent reliefs for national insurance contributions, would be important in keeping shop prices down.

The latest official data published last month showed that rain and flooding failed to dampers shoppers' enthusiasm in February, with the volume of retail sales rising by 1.7% on the previous month – more than three times as fast as economists had expected. It followed a 2% drop in January.