Key events
Tesco predicts that food inflation will stabilise in low single digits for the rest of the year.
CEO Ken Murphy is speaking to reporters now, and explains:
“I see that stabilising, that kind of low single digit for the rest of the year is our planning assumption.”
Murphy adds that inflation is still sticky for some products, such as cocoa (where poor harvests in extreme weather conditions have led to a tripling of prices), potatoes and coffee.
UK union Unite has taken a swipe at Tesco for growing its profits in a cost of living crisis.
Unite general secretary Sharon Graham says:
“Tesco is raking in mountains of cash while families struggle to put food on the table because of sky high prices. Many companies have used the cost-of-living crisis to grab excessive profits.
“There is an epidemic of profiteering in our economy – the government has been missing in action and failed to curb it.”
Tesco would doubtless deny accusions of profiteering.
Today’s financial results show it ran operating profit margins of 4.2% in the UK and Ireland in the last financial year – which is 42 basis points higher than the previous year.
Tesco adds that its current year operating margin is now similar to pre-pandemic levels.
China says Fitch rating outlook downgrade “regrettable”
China’s Ministry of Finance has said Fitch’s move to downgrade the country’s sovereign credit rating outlook is “regrettable”, news agency Xinhua reports.
Xinhua adds:
Fitch’s rating system has failed to effectively reflect the positive effects of China’s fiscal policies on boosting economic growth and stabilizing the macro leverage ratio in a forward-looking manner, the ministry said in a statement.
Tesco: inflationary pressures have lessened substantially
Britain’s largest supermarket chain has declared that inflationary pressures have “lessened substantially”, as it reports a jump in profits.
Tesco has posted a 12.8% rise in adjusted operating profit for the last financial year, up to £2.8bn, and a 7.4% rise in group sales.
CEO Ken Murphy says the group is encouraged by signs that consumer sentiment is improving, and offers hope that the worst of the cost of living squeeze may be over.
Murphy says:
Inflationary pressures have lessened substantially, however we are conscious that things are still difficult for many customers, so we have worked hard to reduce prices and have now been the cheapest full-line grocer for well over a year.
We have continued to invest in helping customers where it matters most, cutting prices on more than 4,000 products and doubling down on our powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices.
Recent data suggests Murphy is right – inflation in shop prices in the UK fell to a two-year low in March, amid a fall in food price inflation across major economies.
Tesco is expecting to grow its profits this year; telling shareholders it expects retail adjusted operating profit of at least £2.8bn in 2024-25.
On a statutory basis, Tesco’s pre-tax profits swelled to £2.3bn from £882m in 2022, up 159.5%.
Introduction: Fitch cuts outlook on China to negative
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Credit rating agency Fitch has fired a shot across Beijing’s bows, by cutting the outlook on China’s debt.
Fitch has revised the outlook on China’s Long-Term Foreign-Currency Issuer Default Rating to Negative from Stable today, warning that risks to China’s public finance outlook are rising.
China, Fitch points out, is facing “more uncertain economic prospects” as it transitions away from growth based on its property sector, where a construction boom has burst.
Fitch also kept China’s credit rating at A+, which is the fifth-highest investment grade rating, but the new negative outlook implies this rating could be cut in coming months.
Fitch identifies several threats to China’s fiscal stability, including a rising deficit, increasing government debts, and risks posed by the “Local Government Financing Vehicles” used to fund property projects.
It says:
Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective.
Fitch believes that fiscal policy is increasingly likely to play an important role in supporting growth in the coming years which could keep debt on a steady upward trend. Contingent liability risks may also be rising, as lower nominal growth exacerbates challenges to managing high economy-wide leverage.
Fitch also warns that China faces “near-term growth headwinds”, predicting growth will slow to 4.5% in 2024, from 5.2% in 2023. It adds that deflation “remains a concern”.
Also coming up today
Investors around the world are poised for the latest US inflation report, due this afternoon. It is expected to show a small pick-up in the pace of price rises, lifting the US CPI rate to 3.4% from 3.2%.
But core inflation could keep slowing, perhaps down to 3.7% from 3.8%.
The US central bank, the Federal Reserve, wants to push inflation lower, so today’s data will influence how soon it can cut interest rates.
Dan Coatsworth, investment analyst at AJ Bell, says:
The central bank wants to see sustained evidence of inflation coming down and that doesn’t appear to be on the menu. The signs are clear for investors to see, but many have been choosing to ignore them.
The Fed putting it into black and white could be a difficult pill for investors to swallow, so brace yourself for turbulence on the market this week.”
The agenda
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7am BST: Sweden’s GDP report for February
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Noon BST: US weekly mortgage applications
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1.30pm BST: US inflation report for March
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2.45pm BST: Bank of Canada interest rate decision
