Competition and Markets Authority calls for pricing policy reform as it finds high inflation not due to weak competition

The UK competition watchdog has warned supermarkets that it will examine any attempts to rebuild profit margins after the recent fall in inflation and called on the government to reform pricing policies to help consumers.

The Competition and Markets Authority said in a report on Thursday that it had found high food price inflation was not being driven by weak retail competition, but noted that competitive pressure would be important as input costs fell.

Official data this week showed that the rate of consumer price rises declined to 7.9 per cent in June from 8.7 per cent in May, a bigger than expected drop.

The CMA said that now some grocery retailers’ input costs were starting to decline, it had detected signs during its probe that they were planning to begin rebuilding their profit margins.

The watchdog said it would “monitor this carefully in the months ahead to ensure that people benefit from competitive prices as input costs fall”.

Although food price inflation is at near all-time highs, evidence collected by the CMA suggested that it had not been driven up by competition issues in the sector, which registered a fall in operating profits in the past year.

That decline was due to retailers’ costs increasing faster than revenues, it said, indicating they had not passed on rising costs in full to consumers.

The CMA’s findings in part echo those of the Bank of England, which does not believe that “greedflation” — where companies increase prices beyond the extent that their own price pressures would demand — has played a significant role in the surge in food prices.

However, the regulator said rules on unit pricing — which sets out the cost of weighed foodstuffs, helping shoppers compare prices — needed tightening at a “time when food and other grocery prices are rising”.

In a study of 18 retailers, the CMA found compliance concerns relating to how some displayed unit pricing, but said these were in part the result of rules that allowed for inconsistencies in practices and left scope for interpretation.

The watchdog cited as one example tea bags “being priced per 100 grams for some products and others being unit priced per each tea bag”, and found “missing or incorrectly calculated unit pricing information both in store and online”.

The CMA urged the government to reform legislation around unit pricing and said it had written to companies that were not fully complying with current rules, warning them of enforcement action.

In response, the government said it would consult on the law in this area, which is retained EU legislation, “to make it work for consumers”. A change in the regulation would mean unit prices would have to be clearly displayed in promotions, including loyalty card price per unit.