TESCO chief Ken Murphy has declared there are “encouraging early signs that inflation is starting to ease” as he defended the pricing strategies pursued by the major supermarkets.

The UK’s biggest grocer maintained its profit guidance for the year as it booked total sales of £14.8 billion for the 13 weeks ended May 27, up 8.2% on the same period last year.

The results came as UK households remain embroiled in a cost-of-living crisis, with inflation on food remaining stubbornly high.

Official figures published last month showed the annual inflation rate for food and non-alcoholic beverages was 19.1% in the year to April, the second highest seen for over 45 years, easing slightly from an annual rate of 19.2% in the year to March.

Persistently high food inflation recently led to speculation that Prime Minister Rishi Sunak was considering plans to encourage supermarkets to introduce voluntary price caps for basic goods such as bread and milk to help people with the cost-of-living crisis. That followed criticism from some quarters that major grocers were capitalising on the inflation crisis. But any talk of price caps has since faded.

Mr Murphy said yesterday that Tesco had not held talks with the Government recently and declared pricing in the grocery sector was “competitive”.

He said: “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. I will say that we haven't had any recent discussions with Government around price caps and I don't know where the status of that is.

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

Russ Mould, investment analyst at stockbroker AJ Bell, said the “early signs” of inflation beginning to ease will be “received gratefully by households feeling squeezed on all sides”, adding that it “may also reduce some of the recent political pressure on the sector”.

Mr Mould said: “Perhaps supermarkets have been a bit sluggish in passing on falling wholesale costs, with inflation still the main driver behind Tesco’s sales growth. In other words, it is not seeing growing volumes and that helps explain why the company is not upgrading profit forecasts despite the strong sales performance.

“The company’s scale continues to provide benefits and it is largely defending its leading market share position, while its wholesale business Booker is continuing to perform strongly.” 

Tesco, which maintained its UK grocery market share at 27.1%, said it had seen reductions in the price of milk, bread, and pasta over the past month. However, it warned that it was 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.

Mr Murphy said the grocer’s performance in the first quarter was “underpinned by our relentless focus on value”.

He added: “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.”

He added: “By focusing on our customers we have delivered a strong start to the year.  We are well-positioned for the months ahead and are reiterating our guidance for the full year.”

Booker, the company’s cash and carry business, saw retail sales growth of 15.6%, excluding tobacco. Tesco Bank reported sales 13.9% higher, boosted by new customers in lending and insurance and higher credit card spending.

Tesco told the city that it expects to be able deliver a flat level of adjusted operating profit in 2023/24 and retail cash flow within its target range of £1.4bn to £1.8bn, and bank adjusted operating profit of between £130m and £160m.