Tesco has highlighted a sharp fall in inflation that should benefit shoppers but faces accusations of profiteering amid challenging times for many consumers.

As Tesco posted a 13% increase in annual profits, to £2.8bn, chief executive Ken Murphy said inflationary pressures had lessened substantially during the latest year.

The group noted that the prices of many global commodities had fallen.

The comments provide further evidence that the tide is turning after inflation surged to record highs in the UK amid the recovery from the pandemic and the fallout from Russia’s war on Ukraine.

On Tuesday the Financial Conduct Authority said its research showed the cost of living squeeze appeared to be easing.

But the FCA cautioned that 7.4million people were struggling to pay bills and credit repayments in January. That compared with the 5.8m recorded in February 2020, before the squeeze began.

The prices of many goods and services are higher than they were before the pandemic. Mortgage costs soared after the Bank of England hiked interest rates to tackle inflation.

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Mr Murphy said Tesco was conscious that things are still difficult for many customers. The group thinks it has been doing its bit by reducing prices enough to mean it has been the been the cheapest of the UK’s full-line grocers since November 2022.

“Over 4,000 products were cheaper at the end of the year than at the start, with an average reduction of around 12%,” it said.

Claiming that it balances the needs of all stakeholders to create sustainable long-term value, Tesco noted it had rewarded staff the “largest ever increase in colleague pay” during the latest year. They have also enjoyed new “wellbeing benefits”, including virtual GP appointments.

The group plans to create around 2,000 additional UK roles across 70 new stores and its technology and online teams.

Suppliers are set to benefit. Tesco said it was contributing an additional £75 million to British agriculture.

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But not all stakeholders believe Tesco is playing fair.

The head of the Unite trade union Sharon Graham said: “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.”

She claimed there is an epidemic of profiteering in the UK which the government has failed to curb.

Tesco may not have helped itself by highlighting how much cash it is generating and how much of that it plans to pay out to shareholders.

The group said it has paid £1.8 billion to investors through share buy backs since October 2021 with a further £1bn to be shelled out in the current year.

In addition, Tesco plans to increase the annual dividend paid to shareholders by 11%.