Tesco share price recovery stalls as UK inflation dips again

Tesco (LON: TSCO) share price has held quite well in 2023 even as the UK economy stares at its worst recession in more than a decade. It is also doing well even as high street retailers collapse at the fastest pace in years. The stock was trading at 245p on Wednesday after the UK published the latest consumer and producer inflation data. 

UK inflation remains elevated

Tesco has emerged as a winner in the ongoing crisis in the UK retail sector. The company has used its scale to navigate one of the worst periods in the industry. As a result, its stock has risen by more than 26% from the lowest point in 2022, making it one of the best-performing retail stocks in the country. 

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The main catalyst for the Tesco stock on Wednesday was the latest UK inflation data. According to the Office of National Statistics (ONS), the country’s headline and core inflation moved downwards in January although it remains at an uncomfortably high level. 

The headline consumer price index (CPI) dropped from 0.4% in December to -0.5% in January. This decline led to an annual increase of 10.1%, which is higher than the target of the Bank of England at 2%. Core inflation, on the other hand, declined from 6.3% to 6.2%. UK inflation has cooled for three straight months. 

Why inflation data matters to Tesco 

Inflation numbers are important for Tesco for two main reasons. First, higher inflation figures mean that the Bank of England (BOE) will continue hiking interest rates even as the country remains in a stagflation environment. Retailers like Tesco tend to underperform in periods of high interest rates. 

Second, high inflation means that consumer spending will be curtailed. In fact, recent data showed that UK’s retail sales have been in a downward spiral in the past few months. It also means that chances of a recession are rising. 

However, Tesco, being a low-cost company, is an all-weather firm that tends to do well in all market conditions. That’s because its pricing is usually better than that of other retailers in the country. This explains why Tesco did well during the pandemic. 

Analysts are upneat about Tesco share prices. In a note, analysts at Shore Capital reiterated their hold rating on the stock. JP Morgan, Barclay’s, and Jefferies have a price target of 270p,310p, and 260p, respectively. 

Tesco stock will likely continue doing well toward its next big release which is scheduled for April 13 of this year. 

Tesco share price levels to watch 

Tesco stock has lost its bullish momentum in the past few weeks, as I wrote here. This happened when the stock jumped to a high of 251p in January. It also nearly retested the important support level at 238p. 

The stock remains between the 61.8% and 78.6% Fibonacci retracement levels. From a technical perspective, the outlook of the stock is neutral. A drop below the support at 238p will signal that there are still more sellers in the market. A bullish breakout will be confirmed if it moves above the resistance at 251p.