Shop price inflation fell 0.5% in July, representing the steepest fall in six-and-a-half years as fashion retailers cut prices for the summer Sales.

The drop compares with a 0.2% slide in June.

In July the non-food category deflated 2.1% from 1.9% in June, while food price inflation dropped to 2.2% in July from 2.7% in June, its lowest rate since summer 2010, according to the British Retail Consortium (BRC) - Nielsen Shop Price Index.

It is the third consecutive month that shop prices have fallen against last year.

BRC director general Helen Dickinson said: “This is great news for hard pressed families whose budgets have been squeezed by rising utility bills, transport and other costs. It shows just how hard retailers are working to serve their customers and underlines how deep the promotions and discounts from retailers are at the moment.”

Dickinson said there has been “significant” discounting across clothing and footwear in men’s, women’s and children’s categories.

Nielsen head of retailer and business insight Mike Watkins said: “Whilst the 2013 heatwave is bringing strong sales uplifts for food retailers it’s holding back some non-food sales growth, so the welcome slowdown in shop price inflation in July should benefit most retailers and help to kick-start consumer demand as we enter the peak holiday period.”

The index said it expects shop prices to remain “fairly stable” in the medium term.

The BRC said clothing and footwear prices experienced their deepest deflation in July since the index began in December 2006. It fell three percentage points in July to -9.7%. Electricals deflation slowed 3.7% from 4.7% in June driven by household appliances.

Meanwhile, the DIY, gardening and hardware category recorded annual deflation of 0.1%, which slowed from 0.3% in June as tools and equipment for the house and garden returned to deflation.

Easing food price inflation was driven almost entirely by the fresh food category with vegetables, fish and meat driving the fall. Food retailers also pushed out promotions on its seasonal food ranges in the month triggered by the hot weather.