Falling prices for alcohol and health & beauty mean an overall basket 0.6% cheaper than last month, say Michael Barker and Alex Beckett

Fears of a return to grocery price inflation are receding for now as supermarkets continue to keep the cost of food and drink down with a second successive month of price decreases. The overall Grocer Price Index was 0.6% cheaper in March than in February, despite some dramatic rises in fresh produce.

The fruit & veg category saw a hefty 5.3% rise, which suppliers have blamed on higher oil prices and the weakness of sterling. "You can't underestimate the effect the exchange rates are having on fresh produce businesses at the moment," said one leading importer.

A further complication has been heavy rain in Spain the key country from which the UK imports which has wiped out swathes of crops and pushed up the price of citrus, leafy salads and some veg.

At a time of year when a huge volume of fresh produce is imported, shoppers are having to pay more, although that cost is expected to fall once a wide range of UK produce comes into season.

One source of cheer for consumers was falling alcohol prices. The category, which recorded the second-biggest price increase in February with a 1.3% hike, saw the sharpest price cuts in March as prices dropped by 5.8%.

"Putting up booze prices in February was basically the retailers milking the margins to put into profitability for their World Cup war chest," claimed the sales director of a major beer brand. "With lower prices across all drinks categories, they can take the high ground with deep cuts for Easter. It's a street-fighting method but it pays off for them."

He added that last week's Budget announcement, that duty on BWS would increase by 2% above inflation, had so far fallen on deaf ears among retailers. He did not expect prices to reflect the duty increase until after Easter. Another beer source added that deals on booze were particularly prevalent in March as it was so near to the end of the financial year and helped boost sales figures.

Health & beauty was the other major mover with a flurry of promotions leading to a 3.4% fall. High competition following big brand launches such as Dove Men+Care had prompted a dip in shelf prices, according to one male-grooming company.