LONDON (Reuters) – Tesco, Britain’s biggest retail group, said on Friday it saw “encouraging early signs” of the start of a decline in UK inflation after reporting strong underlying growth. 9% of its sales in the country during the last quarter.

“We think inflation has passed its peak,” Tesco chief executive Ken Murphy told reporters.

The very high inflation in the United Kingdom, driven in particular by the rise in food prices, has become a very sensitive political subject in the country which has experienced a wave of strikes in several sectors against a backdrop of wage demands.

Food prices soared 19% in April according to official statistics. Industry data, however, showed that in May, grocery inflation fell to 17.2%.

Ken Murphy warned that even if some commodity prices fall, inflation could persist due to higher labor costs.

Tesco, which has a share of more than 27% of the UK grocery market, on Friday confirmed its forecast for adjusted operating profit for its retail business – its key profitability indicator – broadly stable for the year .

It made a profit of 2.49 billion pounds ($3.18 billion) in the 2022-2023 financial year.

The group benefits from consumers looking to save money by preparing their own meals and entertaining at home rather than dining out.

But rising costs are a delicate balancing act for Tesco, which needs to raise prices to maintain margins while remaining competitive with low-cost retailers like Aldi and Lidl.

Tesco said it expects prices to rise in 2023, but the rise will ease as the year progresses. The group recently reduced the prices of certain items that have experienced the greatest increases, such as milk, butter, bread, pasta and vegetable oil.

(Report James Davey and Sarah Young; Victor Goury-Laffont, edited by Blandine Hénault)

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