Falling prices on the high street could set in over the months to come, prolonging the current recession.
Falls were marked on the UK's two main inflation benchmarks in March, official statistics have revealed.
The figures showed that the Consumer Price Index (CPI) fell from 3.2 to 2.9 percent, while the Retail Price Index (RPI) - which incorporates property costs - entered negative territory for the first time since 1960, dropping from zero to -0.4 percent.
This is a crucial milestone in what some economists are seeing as a global slump into deflation - negative price rises - caused by the credit crunch and economic downturn. Deflation has the potential to greatly increase the length of a recession as it depresses spending - with businesses and consumers holding off on making large purchases because they know they can get the goods cheaper later.
The RPI falls could have other knock-on effects, as it is used as a benchmark for setting salaries. Therefore, widespread pay freezes from employers are anticipated on current price trends.
Speaking to the Times newspaper, Colin Ellis, European economist at Daiwa Securities, said: "The record minimum for RPI since 1948 is -0.8 per cent in June 1959. It is only a matter of time before RPI sets a new record low on that front."
Meanwhile, charities have claimed that the "real rate" of inflation faced by Britain's retirees remains higher than the average. Help the Aged and Age Concern suggested that pensioners were disproportionately affected by rises in food and fuel costs because they were on lower fixed incomes than younger people in full-time employment.
Michelle Mitchell, charity director of Help the Aged and Age Concern, said: "Falling headline inflation masks the fact that many older people's real rate of inflation remains far higher than the average. Most older people aren't benefiting from falling mortgage interest rates which are driving down inflation and are still struggling with high food and fuel bills."
