Oil rise a 'speculative bubble'

FOOD PRICE inflation should ease in the near future as supply patterns change to meet current demand, Tesco chief executive Sir Terry Leahy said yesterday.

Addressing the business breakfast meeting organised by The Irish Timesmonthly Innovationmagazine, Sir Terry said: "I don't think the rate of food commodity price increases will continue into the long term."

Food prices have risen sharply over the past 12 months due to increasing demand and the change in the use of some agricultural land for biofuel production.

Sir Terry said producers would adjust to meet the new circumstances.

The Tesco boss said inflation ranged from 2 per cent up to 6 per cent across its global operations, which span from the United States to Asia. In Ireland, price inflation is running at about 4 per cent, he added.

"There is no doubt that the consumer is stretched and is looking to save money," he said. "People are shopping around more and they're buying a slightly different mix of products." He said producers needed to work harder to persuade consumers that their brands were worth buying.

On the recent surge in oil prices, Sir Terry described the recent spike as a "speculative bubble".

Sir Terry said the sharp recent rise in fuel prices had negated much of the cost benefits that Tesco had achieved by introducing a variety of energy-saving measures in its stores.

The Tesco boss said the company's central and eastern European businesses continued to show good momentum, while economies in Asia were performing well. Against this, its newly-opened Fresh Easy subsidiary was operating in markets in the US that were feeling the effects of the property slowdown and credit crunch.

Sir Terry said Tesco's Irish business continued to operate strongly. Tesco re-entered the Irish market in 1997 with the acquisition of Quinnsworth and Crazy Prices, having previously quit the market in the 1980s. "There was a lot of initial scepticism about Tesco in 1997 because we'd been here before in the 1980s and hadn't left much of a mark to be proud of."

He said Tesco spends about €2.5 billion buying Irish goods each year. "We're now a bigger customer than the US, Germany and France," he said.

Tesco has more than 100 stores in Ireland and employs in excess of 13,000 staff here. The group has invested more than €1 billion on its network of stores over the past decade.

Sir Terry said its online shopping operation was the fastest growing within the group. "It's growing by 50 per cent a year in Ireland," he said, adding that the rate of growth in online shopping was faster than that being experienced in the UK, where the business is generating "a couple of billion pounds" in sales.