Sainsbury’s, the UK’s second-largest supermarket, said it expects cost inflation of 2% to 3% over the next 12 months as a result of the weaker sterling and rising commodity prices. The retailer said cost inflation, which includes its food purchases, had risen by 2.5% for its 2016 financial year as sterling deflation worked its way through. Sainsbury’s chief executive Mike Coupe said the company has done a “particularly good job of mitigating costs within our supply chains to reduce the impact as far as ongoing retail prices are concerned”.

The higher rate of cost inflation, coupled with continued investment in prices, resulted in an 8% decline in pre-tax profits to £503m (€599m) for Sainsbury’s financial year ended March 2017. Sales in the group’s retail business grew by 13% to £28.7bn (€34bn).

However, operating profits in Sainsbury’s retail business declined 1.4% to £626m (€746m) as profit margins narrowed to 2.2%.