Historically high food price inflation has not been driven by weak competition among supermarkets but not all retailers are displaying prices as clearly as they should, the competition watchdog has found.

The Competition and Markets Authority (CMA) said a lack of clear display prices could be hampering people’s ability to compare products and has written to retailers warning them to make the necessary changes or risk enforcement action.

It is also calling on the Government to tighten the law around pricing displays.

CMA chief executive Sarah Cardell said: “With so many people struggling to feed their families, it’s vital that we do everything we can to make sure people find the best prices easily.

“We’ve found that not all retailers are displaying prices as clearly as they should, which could be hampering people’s ability to compare product prices.

“We’re writing to these retailers and warning them to make the necessary changes or risk facing enforcement action.

“The law itself needs to be tightened here, so we are also calling on the Government to bring in reforms.”

Ms Cardell continued: “We’ve also looked at how competition is working across the grocery retail market more widely.

“The overall evidence suggests a better picture than in the fuel market, with stronger price competition between all of the supermarkets and discounters.

“In the next phase of our work, we will examine competition and prices across the supply chain for the product categories we’ve identified.

“We’ll also continue to monitor the situation to ensure that competition remains effective as input costs start to fall.”

The CMA announced in May that it was investigating whether “any failure in competition” was leaving consumers paying higher grocery and fuel prices than they should be.

It has already reported back that drivers paid nearly £1 billion more for fuel at supermarkets last year due to increased margins.

However the CMA found that operating profits in the retail grocery sector fell by 41.5% in 2022/23 compared with the previous year, while average operating margins fell from 3.2% to 1.8%.

This was due to retailers’ costs increasing faster than their revenues, indicating that rising costs had not been passed on in full to consumers, the watchdog said.

Consumers were shopping around to get the best deals, and the lowest-price retailers – Aldi and Lidl – had gained share from their competitors, suggesting retailers were restricted in their ability to raise prices without losing business.

However the CMA found that not everyone was able to benefit fully from strong competition, particularly those who could not travel to large stores or shop online, and therefore may rely on higher-priced convenience stores.

There were some signs that retailers were starting to rebuild their profit margins, and the CMA warned it would “monitor this carefully in the months ahead, to ensure that people benefit from competitive prices as input costs fall”.

The watchdog said it was concerned that some supermarkets were using inconsistent unit pricing across similar products, making it hard for consumers to compare deals on a like-for-like basis, noting an example of tea bags priced per 100 grams for some products and per tea bag for others.

It had also found missing or incorrectly calculated unit pricing, such as a 250ml hand wash costing £1.19 but unit priced at £476 per 100ml, as well as pricing information unavailable online until items were selected.

Other labels were too small or obscured by promotional information or shop fittings, and some retailers were not displaying unit prices for products on promotion.

The CMA said it will publish findings of consumer research into the use of unit pricing in the autumn.

Sue Davies, head of food policy at Which?, said: “Which? has repeatedly exposed inconsistent and confusing supermarket pricing, which could make it difficult for shoppers to easily work out which products offer the best value, so it’s positive to see the CMA calling for immediate action from the supermarkets on this issue.

“The supermarkets must finally do the right thing by their customers and urgently act on the areas highlighted by the regulator. This includes the need to put unit pricing on promotions, such as on loyalty card offers and multi-buys, and make unit pricing clearer and more consistent.

“Government must act swiftly on its promise to update pricing rules and close the loopholes that are allowing supermarkets to unnecessarily confuse shoppers, and the regulator must be ready to take enforcement action if the supermarkets don’t act to quickly improve their pricing practices.”

Chancellor Jeremy Hunt welcomed the CMA’s findings but backed the watchdog’s plans to further investigate the supply chains affecting the pricing of 10 day-to-day products – baby formula, baked beans, bread, chilled desserts, lemonade, mayonnaise, milk, pet food, poultry and ready meals.

Mr Hunt said: The cost of the weekly shop is a worry for millions of people.

“It’s reassuring that competition between supermarkets is working, but the CMA has my backing to look further into price rises for 10 everyday essentials.

“It remains the case that the best way to help ease the pressure on families is to get inflation right down. Figures this week show our plan is working and we need to stay the course, halving inflation this year and returning it to 2% next.”

British Retail Consortium chief executive Helen Dickinson said: “We welcome the CMA report which confirms that despite the challenges caused by rising costs throughout the supply chain, the grocery market remains as competitive and efficient as ever.

“Indeed, retailers have gone above and beyond to try and protect consumers from rising costs in the supply chain, with operating profits falling ‘significantly to below historic levels’.

“Supermarkets have been working hard to support their customers through the cost-of-living crisis and will be reflecting on the CMA’s recommendations on unit pricing.

“The CMA itself notes that ‘many of these problems stem from the rules themselves’, and retailers stand ready to support proposed changes to the unit pricing rules.”