Woolies in shelf price warning

Supply costs ‘inflationary’

WOOLWORTHS chief executive Brad Banducci has warned inflationary pressure is creeping into the supermarket aisle as more of his grocery suppliers than usual solicit price increases to cope with steeper shipping, freight and other supply chain costs.

Mr Banducci said he expected the grocery sector over the next six months to switch to “slightly inflationary”, evident in expected price rises across fresh food categories such as meat, led by beef and lamb, as well packaged groceries and products such as tinned food and pasta.

“We are starting to see very modest shelf price inflation in these core long-life lines; the settings suggest we will go from being very deflationary to neutral to slightly inflationary in the next while,” he said on the release of the retailer’s first quarter trading update.

Mr Banducci’s comments came as Australia’s underlying inflation rate smashed economists’ forecasts in the year to September.

The Australian Bureau of Statistics’ Consumer Price Index released on Wednesday showed the trimmed mean inflation rate – which strips out more volatile price fluctuations – increased from 1.6 per cent to 2.1 per cent, its highest point since 2015.

Economists were forecasting only a 1.8 per cent rise in underlying inflation.

The headline inflation rate retreated to 3 per cent over the year to September,

The RBA has previously indicated it will not move on rates until inflation remains within its 2 to 3 per cent target band for a sustained period of time.

Russel Chesler, head of Investments and Capital Markets at VanEck, said the data indicated inflation would be an ongoing problem and require multiple interest rate increases to contain.

“Inflationary pressures are clearly building and the market is pricing in the bringing forward of interest rates and we could see official rates rise two times by the end of 2022,” he said.

Mr Banducci said Woolworths was seeing material price increases from suppliers.

“Of course some of the logic to it is relatively compelling with freight costs and whatever,” he said.

He described the first quarter of fiscal 2022 as the most challenging quarter of the pandemic so far.

Group sales were up 7.8 per cent to $16.07bn compared to the same quarter last year.

But store closures and trading restrictions slashed Big W sales by 17.5 per cent.

Total Australian supermarket sales for the first quarter grew by 3.9 per cent to $12.27bn and like for like sales were up 2.7 per cent.

Woolworths shares fell 3.2 per cent to $39.16 as some analysts were expecting closer to 3.7 per cent like-for-like sales growth for its Australian supermarkets.

They were also concerned by the inflation warning.