UK's high food inflation not driven by weak competition - regulator

Report vindicates supermarkets' rejection of profiteering claims

*

CMA says rules on unit pricing should be tightened

*

Regulator to probe prices across supply chain for 10 products

LONDON, July 20 (Reuters) - Britain's high food price inflation has not been driven by weak retail competition, the country's regulator said on Thursday, vindicating supermarkets' rejection of claims they have profiteered during a cost of living crisis.

Some politicians, consumer groups and trade unions have accused the supermarkets of making excessive profits through the crisis, a charge grocers, including market leader Tesco and No. 2 Sainsbury's, dismiss as nonsense.

Updating its probe into the grocery sector, the Competition and Markets Authority (CMA) said the overall evidence suggested a better picture than in the fuel market, with stronger price competition between all of the supermarkets and discounters.

UK food price inflation reached its highest since 1977 in March at more than 19%, according to official data. It slowed to 17.3% in June, but is still a major strain on the finances of many households.

"Although food price inflation is at historically high levels, evidence collected to date by the CMA indicates that competition issues have not been driving this," the regulator said.

It highlighted that operating profits in the retail grocery sector fell 41.5% in 2022-23, with average operating margins falling to 1.8% from 3.2%, indicating retailers' rising costs were not passed on in full to consumers.

It also noted that the lowest priced retailers, discounters Aldi and Lidl, had gained market share, suggesting retailers are restricted in their ability to raise prices without losing business.

The CMA did, however, say that rules on so-called unit pricing, or how much a particular product costs by weight or volume, should be tightened and it called on the government to reform legislation to help shoppers spot the best deals.

"Not all retailers are displaying prices as clearly as they should, which could be hampering people's ability to compare product prices," CMA Chief Executive Sarah Cardell said.

She said offending retailers would be told to make the necessary changes or risk facing enforcement action.

The next phase of the CMA's probe will examine competition and prices across the supply chain for 10 product categories, including milk, bread, and baby formula.

The CMA this month said weakening retail competition was contributing to higher fuel prices for drivers.

The government and the British Retail Consortium (BRC), which represents the supermarkets, welcomed the CMA's report.

"Retailers have gone above and beyond to try and protect consumers from rising costs in the supply chain," BRC Chief Executive Helen Dickinson said.

Governments across Europe have been struggling with high inflation. Last month the French government secured a pledge from 75 food companies to cut prices on hundreds of products. Hungary, meanwhile, has imposed mandatory price cuts. (Reporting by James Davey and Sarah Young; Editing by Paul Sandle and Mike Harrison)