COMMENTS today from Tesco chief executive Ken Murphy suggesting there are “encouraging early signs that inflation is starting to ease” will have been pleasing to hear for households up and down the UK.
After more than a year or spiralling inflation, compounded by rises in interest rates imposed by the Bank of England to tame inflation, many people are likely to embrace any indication that the relentless pressure they have been facing on the price front could be on the wane.
But it is important to not get carried away at this juncture. While Tesco talked today of its “relentless focus on value” and a strong response to its “low everyday prices” strategy, the reality is that inflation continues to be a major burden for UK consumers.
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Food inflation, in particular, remains problematically high, as official figures underline. The Office for National Statistics reported in May that annual consumers prices index inflation for food and non-alcoholic beverages increased by 19.1% in the year to April. It marked only a slight decline on the figure published a month previously, which showed annual CPI inflation for food and non-alcoholic drinks had risen by 19.2% in the year to March.
Mr Murphy said today that Tesco had seen milk, bread and pasta fall in price in the last month but still faced persistent rises in the price of commodities such as potatoes and rice.
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The bottom line is that food inflation in the UK, for a variety of reasons from Brexit and high labour costs to the time it takes price reductions to filter through supply chains to consumers, seems unlikely to fall to any significant extent soon. And even should it to return to the Bank of England’s core inflation target of 2%, the price rises we have seen over the last year and a half are already baked in.
From a corporate perspective, Tesco was upbeat about its first-quarter performance. But, as analyst Russ Mould at stockbroker AJ Bell observed, volume growth is proving to be challenging, which he said might explain why the company did not upgrade its profit forecast for the year.
Tesco and other major supermarkets will, however, be pleased to that Prime Minister Rishi Sunak’s idea to introduce voluntary price caps for basic foods is beginning to fade in the rear-view mirror.
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