J Sainsbury PLC (LSE:SBRY) is likely to benefit more from rising food inflation driven by the Middle East conflict than it will be hurt by a resulting softening in sales volumes, analysts at Citi predict.
The bank nudged up its food inflation forecast for the UK's second-largest supermarket in 2026 by around one percentage point to approximately 4%, citing the ongoing conflict in Iran alongside extreme weather in key food-producing regions in southern Europe – factors that are pushing up the cost of staple goods across the supply chain.
Higher food prices tend to benefit supermarket revenues directly, since grocers broadly pass input cost increases on to customers, lifting their top-line sales figures even when the volume of goods sold remains flat.
Citi trimmed its fourth-quarter grocery sales growth estimate slightly to 4.7% from 5.3%, reflecting a modest dip in industry volumes following a strong summer boosted by warm weather.
Looking further ahead, the bank raised its forecast for Sainsbury's grocery sales growth in the 2027 financial year to 4.3% from 4%, ahead of the consensus estimate of 3.8%.
The caution concerns Sainsbury's Argos general merchandise arm, where Citi trimmed its sales forecast, citing potential pressure on discretionary spending and the threat of increased competition following Chinese e-commerce giant JD.com's launch of its Joybuy platform in the UK this week.
Putting it all together, the analysts raised their share price target from 360p to 377p.
Also, Citi raised its price target on Tesco as it lifted 2027 UK like-for-like forecast on the back of the same inflation upgrade, though it flagged that rising energy prices could weigh on margins by up to 1.9 percentage points.