Coles says shoppers are willing to pay more when cost increases bump up supermarket prices, allowing it to improve earnings before it is cut loose as an independent company.

Releasing its third-quarter sales results on Thursday, Coles' owner Wesfarmers said food and liquor prices fell by 0.7 per cent in three months to March 31 - a slowing from 0.9 per cent deflation in the second quarter and 1.6 per cent in the first half.

Deflation eased in the quarter. Credit:Michelle Mossop

Wesfarmers managing director Rob Scott said price-cutting had eased mostly due to less deflation in fresh produce and meat and an increase in dairy prices.

Mr Scott said Coles' competitors were behaving "rationally" and passing on cost increases to consumers, meaning Coles did not have to wear inflation to avoid losing sales as it would have happened in recent years.