Inflation is back with a vengeance. Chancellor Rachel Reeves assumed businesses would simply “have to absorb some of [the NIC increases in her October budget] through [reduced] profit and [lower] wage increases”. But shoppers will be absorbing the extra costs too. The start of the new financial year has brought an immediate uptick in inflation, with prices rising 4.1% last month [Kantar 4 w/e 18 May] to their highest levels since February 2024.

This inflation has also had an immediate impact on shopper behaviour. After “splurging on Easter celebrations”, monthly top-line sales growth slumped from 9.6% to only 3% [NIQ 4 w/e 17 May]. That’s despite the sales boost from the continued warm and sunny weather.

As the latest Asda Income Tracker notes, all households experienced a decline in disposable income in the past month, with rising food price inflation compounding sharp hikes in water, gas and electricity bills.

Asda’s woes

Of course, supermarkets and suppliers are doing their best to keep inflation down, as this week’s Grocer 33 price comparison again shows. Asda has even listed Uruguayan beef to keep inflation in check as beef prices continue to soar.

And announcing its Q1 results, Allan Leighton vowed it would refuse all requests for cost price increases as the “gatekeeper for low prices”, in defiance of the inflationary environment. That won’t be easy. As we saw in our recent analysis, Asda’s rollbacks last “up to” 12 weeks but invariably the duration has been closer to the standard three or four. Nor will it be easy to win support from suppliers, with its market share continuing to fall – especially if Asda won’t accept even the most valid CPI requests.

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In the meantime, the return of inflation looks like good news both for own-label sales and the discounters. Only this month Aldi recorded a bigger market share in food and drink than Asda. With its store expansion plans (and Asda not having opened a store since 2020) it looks only a matter of time before that’s a permanent state of affairs.

But inflation is also good news for supermarkets with strong premium own-label propositions. Conversely it’s bad news for brands, who are still struggling to recover volumes and facing into a pre-watershed ad ban and a hefty EPR bill.

Still: even own-label is not impervious to inflation. This month, Tesco hiked the price of its Dine In meal deal from £12 to £15. Could a brand get away with a 25% CPI any time soon?

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