Tesco Boss Sees ‘Early Signs’ Food Inflation Starting to Ease

A customer shops for food items inside a Tesco supermarket store in east London, on Jan. 10, 2022. (Daniel Leal/AFP via Getty Images)

There are “encouraging early signs that inflation is starting to ease,” Tesco’s boss has said as the retail giant reported higher sales for the past quarter.

Ken Murphy, chief executive of the UK’s largest grocery chain, suggested that rampant food inflation could have passed its peak, though he stressed that customers continue to face cost-of-living pressures.

He told reporters on Friday, “We are very conscious that many of our customers continue to face significant cost-of-living pressures and we have led the way in cutting prices on everyday essential items. There are encouraging early signs that inflation is starting to ease across the market and we will keep working tirelessly to ensure customers receive the best possible value at Tesco.”

Rising Food Prices

According to the latest data from the Office of National Statistics (ONS), the Consumer Prices Index (CPI) rose by 8.7 percent in the 12 months to April 2023, down from 10.1 percent in March.

The annual inflation rate of food and non-alcoholic beverages eased from 19.2 percent in the year to March 2023 to 19.1 percent in the year to April 2023.

The high food inflation led to reports last month that Downing Street was drawing up plans to encourage supermarkets to introduce voluntary price caps on food staples in a bid to ease pressures on households.

But Murphy said the supermarket had not held recent talks with government over this and defended pricing in the sector.

“Grocery retail in the UK is widely held as one of the most fiercely competitive markets in the world, and these internal competitive mechanisms keep our pricing very sharp,” he said.

“We are confident that we already provide a very competitive environment on pricing, and will continue to do so.”

Tesco said it has seen reductions in the price of milk, bread, and pasta over the past month.

But it cautioned that it is still facing persistent increases in the commodity prices of other popular products, such as potatoes and rice, which it said fluctuate due to weather conditions and crop yields.

Stubborn Inflation

Prime Minister Rishi Sunak listed curbing inflation as one of his top priorities, but inflation has proved to be more stubborn than expected.

Addressing the Economic Affairs Committee in the House of Lords on Tuesday, Bank of England governor Andrew Bailey said, “We still think the rate of inflation is going to come down but it’s taking a lot longer than we expected.”

Andrew Bailey, governor of the Bank of England, during the bank's Monetary Policy Report Press Conference, at the Bank of England, London, on May 11, 2023. (Henry Nicholls/PA Media)

Swati Dhingra, a member of the central bank’s Monetary Policy Committee, said that retailers are not passing falls in prices onto customers.

But she added that this does not necessarily mean that the retailers are profiteering.

The Bank of England has examined the accounts of six major supermarkets which make up around three-quarters of the UK grocery market and found their profits are not rebounding as expected given falling cost pressures.

Dhingra said: “This data indicates that profits and profit margins are not rising as might be expected in the event of margin rebuilding by supermarkets. This differs from the United States where there has been some reported increase in company profitability, which has been interpreted as a factor contributing to inflationary pressures.

“The balance of evidence suggests that the large cost pressures are slowing and profit margins are not rising in the UK.”

She added that much of the lag in the pass-through of cost reductions is down to the prices of imported goods in the UK, which “possibly peaked later than energy price inflation.”

PA Media contributed to this report.