ALEX BRUMMER: Greedflation hurts us all

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ALEX BRUMMER: Greedflation hurts us all

Anyone expecting supermarket bosses to tell MPs that they are ready to take responsibility for some of the extraordinary 18.7 per cent jump in British

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Anyone expecting supermarket bosses to tell MPs that they are ready to take responsibility for some of the extraordinary 18.7 per cent jump in British food prices in the year to May 2023 is living in cloud cuckoo land.

Still, it can be no accident that in the days leading up to the appearance of retail chieftains before the Business Select Committee, grocers were spraying around sweeteners.

Sainsbury’s offered £15million in price cuts in a challenge to German rivals Lidl and Aldi. Tesco, Morrisons and Marks & Spencer have also unsheathed lower prices.

The no-frills players have been building market share at the expense of the UK’s Big Four – Tesco, Asda, Sainsbury’s and Morrisons. 

Lidl underlined that it is on the side of the least well-off with a promise to distribute 1.8m free school meals to low-income families during the summer break.

Profit margins: Global food prices are down 22% from their peaks yet little of that has reached supermarket shelves

Profit margins: Global food prices are down 22% from their peaks yet little of that has reached supermarket shelves

Profit margins: Global food prices are down 22% from their peaks yet little of that has reached supermarket shelves

The reality is that profit margins in grocery are wafer-thin, at 4p for every pound spent at Tesco and 3p at Sainsbury’s.

Indeed, with four major chains competing for customers with Lidl and Aldi and a raft of more specialist grocers, including the Co-op, Waitrose and M&S, opportunities to price gouge are limited.

The problem lies elsewhere in the food supply chain. It is inexplicable in this green and pleasant land that the prices of milk, cheese and eggs rose 27.4 per cent in a year.

Yes, borders became more sticky after Brexit, labour shortages pushed up pay and energy costs surged after the war in Ukraine. 

But gas prices have tumbled nearly 90 per cent since then and excuses for surging prices are a little thin.

The MPs might better have focused attention on the big multinational branded goods suppliers, such as Nestle, Heinz and Coke.

Anyone following their financial progress since the pandemic could not but be impressed by how they managed to hold profit margins in the 14 per cent to 16 per cent range regardless of geopolitical uncertainty.

Shareholders fixated on earnings and dividends may be rubbing their hands at this performance. 

But consumers and politicians are right to question whether it is correct, in crisis circumstances, that every cent is passed through to investors.

We know lower prices are possible from own-label goods which sell at a considerable discount. 

One of the disappointments, which could have been a focus of MPs’ questions, is why these cheaper items don’t get the same display as Heinz baked beans and super-sized Toblerone.

Global food prices are down 22 per cent from their peaks yet little of that has reached supermarket shelves.

There is nothing new about this. The late economist John Kenneth Galbraith observed that in commerce a ‘get what you can, while you can’ culture prevails.

It may be hard to prove ‘greedflation’, but you cannot change grasping behaviours.

Peace offering

Reaching first base has taken a lifetime for HM Treasury.

Seven years after the Brexit referendum and a forest of newsprint on the vexed question of regulatory equivalence, Chancellor Jeremy Hunt has levered open doors in Brussels and signed a deal which potentially ends the phoney war over financial services hegemony in Europe.

The EU, and France in particular, had harboured hopes of grabbing a share of wholesale currency, clearing and settlements business done in the Square Mile.

But there has been a growing acceptance that while some financial activity, such as new listings and investment banking teams, might migrate to Paris, Frankfurt and Milan, moving the huge derivatives market could put up the cost of trading and layer on regulatory risks.

For the moment the UK’s £275billion financial and professional services industry, worth 12 per cent of the UK’s output, should remain intact. Don’t discount the occasional raiding party.

Rate lottery

Great to see the profits of ethically challenged fintech payments group Wise tripling in the past year.

The jump was less about transactions and more about the accidental interest earned on £10.7billion of customers’ cash balances as rates climbed.

It is wonderful to see innovation succeeding. But shouldn’t at least a share of the largesse be repatriated to clients?

Only asking.

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