UK grocery inflation held firm in July, according to fresh data from UBS’s Evidence Lab, which tracks like-for-like prices across the Big Four and Aldi.
Overall, industry average price growth for identical products came in at 4.2%, unchanged from June and notably below the latest Kantar reading of 5.0% and the Retail Price Index at 5.7%.
While the headline rate may be flattening, the competition under the surface remains anything but calm.
Aldi once again posted the lowest price inflation at 3.4%, up slightly from 3.2% the previous month.
ASDA followed with 3.7%, both well below the Big Four average of 4.4%. Tesco and Sainsbury’s recorded 4.4% and 4.6% respectively, while Morrisons inflated the least at 4.8%.
UBS’s analysts interpret this as a signal of relative restraint at the discounters, particularly Aldi, which appears to be consolidating last year’s margin recovery while continuing to gain market share.
Asda, for its part, has not accelerated its pricing push despite continued share losses, down 80 basis points over the latest 12-week period according to Kantar.
Promotions are also beginning to tick back up. Asda’s rollback activity edged up to 21%, while Tesco lifted its promotional intensity to 34% from 30%. Sainsbury’s eased back slightly, now running at 28% versus 30% a month earlier.
UBS highlights that the percentage of products seeing price increases, 52% in July, is still at levels last seen in early 2024, suggesting underlying cost pressures remain embedded.
That said, with no evidence yet of sector-wide disruption from Asda’s repositioning, the bank remains upbeat on the sector.
Tesco PLC (LSE:TSCO) is still UBS’s top pick ahead of interim results on 2 October.
The broker reiterated its 'buy' ratings on both Tesco and J Sainsbury PLC (LSE:SBRY), noting that steady inflation, rational competition and selective promotions should support margins into the year-end.
The strong appear to be getting stronger, and for now, the sector looks set for a stable, if still competitive, autumn.