Tesco, Britain’s biggest retailer, said the country’s food inflation was starting to ease, signalling some relief for squeezed shoppers and the wider economy as the group reported a 9% rise in underlying quarterly UK sales.
“We do believe that we’re past the peak inflation,” CEO Ken Murphy told reporters on Friday.
Stubbornly high inflation has become a major political issue in the country as it outstrips pay growth, while higher taxes and mortgage rates are also denting household finances.
Prime Minister Rishi Sunak’s key economic pledge to halve inflation in 2023 has been undermined by persistently high food inflation, which was running at over 19% in April, according to the most recent official data.
Grocery inflation eased slightly to 17.2% in May, industry data showed.
Prices of products such as milk, bread, pasta and oil were coming down Murphy said, calling these early positive indicators, but he did warn that others were still rising, highlighting proteins (meat), sugar, coffee, rice and potatoes.
For the year, Tesco expects prices to rise but with the rate of inflation moderating. Murphy said there was also still pressure from high energy costs and rising wages.
“The labour element of inflation is likely to stick,” he warned.
The CEO also hit back at critics, including the Bank of England, who have called out supermarkets for stubbornly high inflation levels.
EATING-IN BOOST
The growth in sales for the 13 weeks to May 27, kept Tesco, which holds a more than 27% share of Britain’s grocery market, on track for broadly flat full-year retail adjusted operating profit, its key profit measure, it said.
It made 2.49 billion pounds ($3.18 billion) in 2022/23.
Sales were lifted by inflation. Murphy said overall Tesco saw continued modest volume declines in the period, particularly in discretionary categories such as general merchandise.
The group has benefited from consumers looking to save money by cooking and entertaining at home rather than dining out, with more people treating themselves, helping sales of its top-end “Finest” range.
At the other end, it has served value-hunting shoppers by price matching with discounter Aldi, by leveraging its Clubcard loyalty scheme, and by cutting prices when commodity costs do come down.
“Tesco is strengthening its grip on its position as the UK’s top supermarket,” said John Moore, senior investment manager at Brewin Dolphin.
Shares in the company, which are up 17% so far in 2023, were down 0.9% in mid-morning deals.
