Average supermarket prices have fallen for a second month, driven by big promotional pushes from Tesco and Morrisons in the run-up to Christmas.

Prices across the multiples were 1% lower on average in December than in November, according to the latest Grocer Price Index, powered by BrandView.co.uk. Year-on-year inflation also fell, from 1.3% in November to 0.8% in December.

Tesco led the downward charge by reducing its prices by 1.8% in December - a stark contrast to its pricing policy in November, when it was the only mult to put up prices month-on-month.

Tesco’s price drop was the result of more promotional activity. Stripping out promotions, the retailer’s prices were actually up by 0.4% month-on-month.

Wholesale prices: eggs & dairy

One year on from the battery cage ban, eggs remain a key focus for price increases. As we report on p36, shell egg prices in the retailers have gone up by 8.2% over the past year, and wholesale prices also remain elevated, driven partly by continuing fallout from the ban and increased input costs.

Egg products used in manufacturing have been the hardest hit: at £850/tonne, liquid egg whites are up nearly 40% year-on-year and 4.1% month-on-month, and egg yolk powder is 34.7% more expensive than last year.

UK and EU shell egg prices also remain above 2012 levels, although they have eased month-on-month due to the usual seasonal drop in buyer demand.

Although dairy products are expected to increase later in the year, price rises to date have been modest. EU whole milk powder is up by 6.3% year-on-year, but skimmed milk powder and UK butter are down on 2012 prices.

Trying to attract more shoppers during the busy Christmas shopping season, Morrisons pursued a similar strategy. Its prices were down by 1.6% month-on-month with promotions factored in. Remove promotions from the equation, however, and they were up by 0.1%.

While there were similarities between Tesco’s and Morrisons’ pricing in December, their annual inflation rates remained very different. Morrisons’ prices were 2.7% lower than a year ago, while Tesco’s were 1.9% higher. Of the major mults, only Sainsbury’s had a higher level of inflation than Tesco, at 2.6%.

Sainsbury’s was also less promotion-focused than Morrisons or Tesco in December, concentrating instead on base prices. As a result, its prices were down 0.6% excluding deals but just 0.2% including them.

Meanwhile, Asda kept prices steady month-on-month and its annual inflation of 0.9% was close to the overall 0.8% average.

Waitrose was also close to the average, with annual inflation of 0.7%. Unlike its bigger rivals, the upmarket supermarket increased prices month-on-month, by 0.5%. Of the 14 categories tracked in this month’s GPI, the only two categories Waitrose reduced its prices in were alcohol and biscuits, confectionery and snacks.

Last week, Waitrose MD Mark Price warned that commodity cost inflation could rise to 5% and identified produce and bread as categories that would be hardest hit. Poor harvests have already caused retail prices to rise in the two categories.

Bakery prices across the supermarkets increased by 1.8% month-on-month in December and prices of fruit and vegetables increased by 3.1%. Year-on-year, bakery prices have increased the most, rising by 8.5% following a disastrous UK wheat harvest.

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