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FTSE: Sainsbury’s says food inflation is starting to fall as it expects £700m profit

A employee arranges produce inside a Sainsbury’s supermarket in Richmond, west London, Britain, June 27, 2022. Picture taken June 27, 2022. REUTERS/Henry Nicholls
City investors appear unimpressed with Sainsbury’s results. Photo: Henry Nicholls/Reuters (Henry Nicholls / reuters)

Food inflation is "starting to fall", Sainsbury's (SBRY.L) has said, as the retailer reported a jump in grocery sales over the past quarter.

Simon Roberts, the supermarket group’s CEO, believes the worst of the food price squeeze is over.

He said: “We are putting all of our energy and focus into battling inflation so that customers get the very best prices when they shop with us, particularly now as household budgets are under more pressure than ever.

“Food inflation is starting to fall and we are fully committed to passing on savings to our customers. Since March, we have invested over £60m ($76m) in lowering prices, leading on price cuts across more than 120 essentials like bread, butter, milk, pasta, chicken and toilet roll.”

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Read more:Supermarkets tell MPs they can't cut prices any further

Prices on the top 100 selling products are now lower than they were in March, he added.

However, while Sainsbury’s claims food inflation is starting to fall, official figures from the Office for National Statistics (ONS) show food inflation eased slightly in May but remained at a stubbornly high 18.4%.

The supermarket said total retail sales excluding fuel increased by 9.8% over the 16 weeks to 24 June, compared with the same period a year earlier.

Grocery sales increased 11% in the period as the retailer said price reductions led customers to buy more.

Sainsbury's now expects pre-tax profits of between £640m and £700m for 2023.

Charlie Huggins, manager of the quality shares portfolio at Wealth Club, said this was good news for UK households coping with the cost of living crisis.

Read more: UK supermarket bosses paid millions as workers make do with £11 an hour

“Sainsbury’s has worked hard to lower prices in the face of intense competition. The launch of Nectar prices, where Nectar card holders save money on everyday items seems to have been well received and has helped the group to hold its own against Tesco (TSCO.L) and the German discounters.

“The group comments that food inflation is starting to fall and this should help ease pressure on consumers, whose finances have been squeezed from all angles by rising prices, no more so than for the weekly shop.”

Sainsbury shares were up 38% in the last six months but slipped 4p to 270p in early trading on Tuesday.

Orwa Mohamad, analyst at Third Bridge, said that supermarkets are still benefiting from high inflation.

He said: “Our experts expect prices to come down as we come out of the summer into September. Supermarkets are facing accusations of profiteering from customers and are already exerting more pressure on suppliers

“Sainsbury’s reported like-for-like sales growth in line with industry trends. According to our experts, this growth is still being driven by high inflation and a high comparison to last year.”

Hugh Radojev, news editor at Retail Week, commented: “Sainsbury’s CEO Simon Roberts was keen to make the point today that whilst some prices have been going up, they have been inflated behind the market as Sainsbury’s has been investing very heavily in keeping prices down when they can and cushioning the impact for customers where it's not been possible to cut prices.

"But while Sainsbury’s are seeing a decline in food price inflation, they're still seeing elevated labour costs. Sainsbury's has increased wages three times in the last 18 months, and rightly so for its staff. However, this is obviously going to have a knock-on effect on some prices and that is something that supermarkets might need to explain to customers going forward as it may lead to even higher prices moving into the future."

Watch: Food inflation is starting to fall, says Sainsbury's boss

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