October 18, 2016 / 3:26 PM / in a year

UK's post Brexit food price rises to be muted - industry execs

* Industry competition will hold back price rises

* Food prices fell in 12 weeks to Oct. 9 - Kantar

* Inflation will be “kept to a minimum” - Tesco exec

* Tesco has “massive respect” for Unilever

By James Davey

LONDON, Oct 18 (Reuters) - Food price rises in the wake of sterling’s post-Brexit vote slump will be softened by intense competition in the industry, which is currently still driving them lower, grocery executives said on Tuesday.

Most economists believe food prices are set to rise as the pound has fallen 18 percent against the dollar and 14 percent against the euro since Britain voted to leave the European Union in June, making importing goods more expensive.

Nearly half of the food Britain consumes is imported.

While official data on Tuesday showed overall inflation recorded its biggest jump in two years in September, industry data from Kantar Worldpanel showed grocery deflation of 0.8 percent for the 12 weeks to Oct. 9 -- a contraction from 1.1 percent in Kantar’s September report.

Though a slower rate than in recent months the falling prices reflect a price war by discounters Aldi and Lidl on the market and the competitive response of the big four players - Tesco, Sainsbury‘s, Asda and Morrisons . It also reflects deflation in some major categories such as bacon, crisps and detergents.

Joanne Denney-Finch, CEO of industry body IGD, said food retailers could not hold out forever if import prices do increase significantly.

“But they are competitive and that will mean quite a lot of price increases will be muted,” she told the IGD’s annual conference.

Matt Davies, UK CEO of Tesco, told the conference the market leader would do everything to ensure food inflation “is kept to a minimum”, noting that its prices had fallen 6 percent in the last two years.

“Everybody should be very clear how damaging inflation is to the economy, to retail businesses, to manufacturing businesses and how lethal it can be to millions of people who are struggling to live from week to week,” he said.

Tesco had a row with major supplier Unilever last week after it tried to push through a 10 percent rise in prices for top-selling brands, including Marmite.

“All of our partners are very aware as to how damaging inflation is and we’re working constructively to deal with that,” said Davies.

“We have 100 percent of the time massive respect for Unilever, 99 percent of the time we operate brilliantly together,” he added.

Mike Coupe, CEO of No. 2 player Sainsbury‘s, reiterated that while the pound’s devaluation was inflationary there were also deflationary pressures because of commodity price movements.

He also noted that Britain’s big supermarket groups operate in a world market where supply and demand constantly adjusts.

“Products will be sourced from different areas of the world to mitigate to some extent the cost pressures of the industry,” he said.

“Having said that there are cost pressures in the industry...and it would be wrong to shy away from that.” (Editing by Susan Thomas)

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