Tesco share price regains its thrust amid elevated UK inflation

Tesco (LON: TSCO) share price bounced back even after the UK published strong consumer inflation data on Wednesday. It jumped to a high of 260p, which was ~35% above the lowest point in October last year, meaning it has outperformed the FTSE 100 index.

US inflation and BoE decision

Tesco, the biggest British retailer, has done well this year even as the UK’s economy remains in a contraction and the cost of living crisis escalates. On Wednesday, I wrote that the country’s inflation continued rising in February.

The headline consumer inflation jumped to 10.4% in February while core inflation, which strips the volatile food and energy prices, rose to over 5%. These numbers are substantially above the Bank of England (BoE) target of 2.0%.

Higher inflation has a mixed consequences for retailers like Tesco. For one, the company could see more customers because it is widely known for having lower prices than other retailers. Also, the firm could benefit by rising prices even as consumers reduce the size of their basket sizes. In the most recent earnings call, the CEO said:

“Even before we overlay the impact of significant commodity and cost inflation. However, with our capability, reach and scale, I see it as our role to protect customers from as much inflation as possible. We will continue to inflate a little bit less and a little bit later than the rest of the market.”

On the other hand, higher inflation will lead to higher interest rates and elevated cost of doing business. Economists expect that the Bank of England will hike interest rates by 0.25% on Thursday. If this happens, it will push interest rates to 4.25%, the highest level in more than a decade.

Another reason why the Tesco share price is rising is the fact that the company is considering spinning off its banking group into a separate company.

Tesco share price forecast

TSCO chart by TradingView

TSCO stock has been in a bullish trend in the past few weeks. It has formed an ascending channel shown in green and is now hovering near the upper side. The stock’s upside is being supported by the 50-day moving average and is approaching the 61.8% Fibonacci Retracement point. The Relative Strength Index (RSI) has moved above the neutral point.

Therefore, the stock will likely continue soaring as buyers target the key resistance point at 281p, which is the 78.6% Fibonacci Retracement point.