Dunnes Stores, the main domestic challenger to Irish market leader Tesco, has finally hit back in the Republic's price battle.

More than a month after Tesco fired the opening salvo with price cuts averaging 25% in 11 stores along the border with Northern Ireland, family-owned Dunnes has launched its retaliatory broadside.

In a weekend advertising blitz, it announced a 'War on Prices... Nationwide', highlighting that Tesco's reductions were confined to a particular area, whereas Dunnes' reductions will apply to all its 135 stores in both the Republic and Northern Ireland. The company told consumers it had been offering "better value" for 65 years and struck a patriotic note, claiming "the difference is, we're Irish".

The price cuts, which average 20% to 30%, cover a wide range of products from meat, fish, dairy, bread, beverages and fruit and veg to household products and toiletries.

Dunnes is hoping to further grow its recently improved market share and take advantage of the unease in some quarters over Tesco's policy of importing more products from the UK while reportedly restricting the shelf space for certain Irish brands.

Already there have been unconfirmed reports that some Irish suppliers have been approaching Dunnes to offer more favourable terms in reaction to Tesco's 'cheaper imports' move.

Meanwhile, Tesco has also been busy. It has just announced an extension of its border store price cuts to counties Mayo and Galway and to Bettystown in County Meath.

It claims the extension of the cuts, originally introduced to counter the shopper exodus to Northern Ireland and the cheaper prices offered by a weakened sterling and lower VAT, will save consumers up to €100 a month.

Ironically, the supermarket war has broken out at a time when CSO figures show Irish prices have fallen in the past year by 4.7%, the steepest rate since 1933. Food costs fell by 2.5% and economists are warning that deflation is now a major threat.