Tesco sees 'encouraging signs' inflation is easing; reiterates profit guidance

Tesco said on Friday there were "encouraging early signs" that inflation was starting to ease across the market as it reported a 9 per cent rise in underlying UK sales in its latest quarter.

The group, which has an over 27 per cent share of Britain's grocery market, also reiterated its guidance for broadly flat retail adjusted operating profit, its key profit measure, in the full 2023/24 year.

It made £2.49 billionin 2022/23.

CEO Ken Murphy said the supermarket group was conscious many of its customers continued to face significant cost-of-living pressures but said some relief could be on the way.

"There are encouraging early signs that inflation is starting to ease across the market," he said.

Prime Minister Rishi Sunak's key economic pledge to halve inflation in 2023 has been undermined by stubbornly high food inflation, which was running at over 19 per cent in April, according to the most recent official data. Grocery inflation eased slightly to 17.2 per cent in May, industry data showed.

Inflation is outstripping pay growth, while higher taxes and mortgage rates are also squeezing household finances.

Tesco is, however, benefiting from consumers looking to save money by cooking and entertaining at home rather than dining out, and from them prioritising essentials over more discretionary purchases.

It is having to balance the increased cost of products from suppliers with the need to be competitive to prevent shoppers switching to discounters Aldi and Lidl, while it is also facing higher staff wage costs.

A scheme to price-match Aldi on about 700 key items has helped as has the popularity of its ‘Clubcard Prices’ loyalty programme that offers reductions to members.

Tesco, whose shares have risen 18 per cent so far in 2023, has said it expects prices to rise in 2023 overall but with the rate of inflation declining through the year.

It has recently reduced the prices of some items which have seen the biggest rises, such as milk, butter, bread, pasta and vegetable oil.