Morrisons has admitted to hiking up prices on some products to compensate for selling others at a loss, a revelation that will fuel claims that below-cost selling is not in the interests of consumers.

In its submission to the Competition Commission, it says: "We only sell products below cost because we have to do so on certain products in order to remain competitive. The resulting impact is that other prices in our stores are higher."

The admission is significant because a shopper who does not buy products sold below cost could be penalised by the compensatory price rises on other items. Rival Tesco also admits to below-cost selling, but says it hits retailers' profits "to the benefit of consumers".

In terms of price flexing, Tesco says it sells products in Express stores at "two to three per cent higher" than other stores because of higher costs. But the FWD and ACS said prices were much higher at Tesco's One Stop stores, of which there are more than 500, even though products sold in them were purchased on the same terms as those sold in superstores.

Research by the ACS earlier this year indicated that prices in One Stop outlets were 20.5% higher than in Tesco Express stores.