Britain's supermarkets are shielding shoppers by absorbing cost pressures, according to Shore Capital, after official food inflation fell to just 1.3% in July.
The reading marked a 40 basis point drop from June and undershot the broker's own forecasts, which the analyst Clive Black attributes to gross margin investment by the grocers.
The Office for National Statistics pointed to easing meat and vegetable prices as the main drivers of the softer figure.
Black and colleague Akhil Patel argue that the grocers are actively supporting customers even as wider inflation climbs.
Headline consumer prices rose 2.9% in July, a 30 basis point monthly increase driven by home energy costs.
That gap between falling food prices and rising general inflation, they say, reflects a deliberate choice by retailers to hold prices down through promotions and loyalty schemes.
Shore Capital points to an unusually competitive summer, with Tesco launching an aggressive fuel promotion in early August and the discounters matched on price by the larger chains.
Hot weather and the FIFA World Cup also lifted summer trading.
The broker cautions that this margin investment limits the scope for earnings upgrades at Sainsbury's and Tesco when they report first-half results, though it does not expect downgrades either.
Shore Capital rates Sainsbury's as a house stock and Tesco a hold.
Looking further out, the firm expects food inflation to climb back towards a range of 3% to 5% in the second half, later than it had anticipated in the spring.
Higher energy costs feeding through distribution and packaging, alongside lower milk yields from parched pasture, are expected to push prices up.
Brent crude near $90 a barrel remains a threat, with Shore Capital warning of a fresh round of cost recovery should current hedges expire with oil still elevated.
The analysts single out the government as the largest source of cost inflation, citing a 4.1% rise in the national living wage for 2026/27.
On rates, they expect the Bank of England to hold, with a cut unlikely while price pressures persist.
The broker keeps a close watch on consumer confidence, which has recovered lately, ahead of the government's Budget on 26 October.
