Minister for Finance Michael McGrath has said that Tesco's price cuts could be a "significant turning point" for grocery costs as other retailers are expected to follow suit.
Tesco Ireland announced today that it will cut prices on more than 700 products.
It follows a sustained period of grocery price inflation, which has seen prices across the board rise by more than 16%.
Early last year, grocery price inflation took off, and since then householders have had to deal with spiralling prices across a wide range of items.
In recent weeks, some staple items such as milk, butter and bread dropped in price.
Tesco today announced it will decrease prices by an average of 10% on more than 700 products across its stores, ranging from foodstuffs to household and beauty products.
The products include Tesco-branded pizza, Pampers nappies, Tesco toilet paper, Tesco sweet potato oven chips and Fred & Flo cotton wool pads.
The company said it is committed to helping its customers but also pointed out it is working with its suppliers to manage cost pressure, and as suppliers reduce costs the company is passing those savings onto customers.
Speaking on RTÉ's Morning Ireland, Minister McGrath said it is "very good news" for consumers.
People are price sensitive and will shop around and respond to good offers, he added.
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The minister said consumers will be relieved to hear of the price cuts and described it as "welcome progress" as everyone has seen a significant rise in food prices in the last 18 months.
"As input costs fall we do expect we do expect retailers to pass on the benefit of that to consumers. So this is potentially quite a significant turning point given the number of products that are now going to benefit from this reduction," he said.
"And given the market forces that are there and the price sensitivity of consumers, I think it is only a matter of time before other grocery providers respond," he added.
The minister also said there is another meeting of the Retail Forum in the coming weeks.
Tánaiste Micheál Martin also said the announcement was "very good news", adding that it was important that a "correction" happened, given that input costs including energy had fallen.
He said people had gone through a very difficult period with increases in the cost of living.
Tesco may take slight hit on margin as a result of price cuts
Damien O'Reilly, from the College of Business TU Dublin and a member of Ministers Retail Forum, described Tesco's announcement as "significant" in the context of its 10,000 to 15,000 store products.
Mr O'Reilly said that 100 fresh meat and chilled products are down, the prices of 115 health and beauty range products are being cut, while 120 sauces and meal ingredient items are going down, as well as 90 frozen food products.
He said there was little change in Tesco beer and wine prices, and that the price cuts are across the "essentials" that people buy.
The 10% cut should equate to a €100 supermarket bill reducing to €90 or under, he said, which he described as a "quite significant saving".
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He suggested that Tesco was "probably taking a slight hit" on its margin as a result, as it "has gone for the big bang".
It is going to be "very difficult" for Tesco's main opposition - SuperValu and Dunnes Stores - to "copy this straight away", he added.
But he said he expects the competitors to respond and that weekend newspapers will feature advertisements for price reductions.
He said Tesco has not published its 700 reduced price products, which would be giving information to rivals, so competitors will have to do price checking and price matching over the next couple of days.
Damien O'Reilly said it will be "interesting to see" whether there will be a change in spend in the big supermarkets this weekend, and if consumers spend more in Tesco because of the price cuts.
He said supermarkets have not been "price gouging"- the increases up to now have been necessary and they are not making huge profits, and this can be seen in Ireland, based on figures in the UK.
He said "visibility of margins" is something that would have to be legislated for as supermarkets are a "very, very competitive business."
Responding to Tesco's pricing move, Niall O'Connor, Group Managing Director at ALDI Ireland claimed its prices are already lower on comparable products.
"We’ll continue to monitor prices and the market to ensure that we always have a discount versus the more expensive full price supermarkets, whether on a basket of goods or a full weekly shop and especially on our own label range, which accounts for 95% of our products," he said.
"That’s our promise to customers, and it will not change."
Meanwhile, in a statement Lidl said it has reviewed Tesco's recent price drops, and claimed its prices are lower than its competitors.
"We carry out weekly price checks on Lidl products versus competitors and we are confident that we will continue to be significantly cheaper than other retailers..," it said.
Price reductions don't go far enough, Consumer Association of Ireland says
Speaking on Drivetime, Michael Kilcoyne, Chairman of the Consumers Association of Ireland, said today's news from Tesco is a positive step, but he believes the price reductions do not go far enough.
He said the 10% average reduction is "nowhere near" the 16% rise that has preceded it and the Government should be looking at the profits and "mark-up" the food retail industry "has on many of their products."
He said the CAI wants the Government to make the big supermarket chains show what they pay suppliers, their mark-up and their profits.
"Nobody in the country is aware of the profits that some of these big supermarkets are making and that's where we should be starting."
He said he didn't accept the "excuse" that disclosing their profits was "commercially sensitive information."
Too early for one-off payment answers
Separately, Mr McGrath said it is too early to give a definitive answer now about potential one-off measures in the Budget.
But he added that such measures are not being ruled out and last year's energy credits did help people through a period of very high inflation.
The minister warned there will always be limited resources in the Budget and choices will have to be made.
Mr McGrath said the most important thing is to manage the nation's finances carefully and prudently.
There is the prospect of an underlying budget surplus next year, without the windfall receipts, he explained.
The minister said there will be a tax and expenditure package in the Budget that provides of indexation of bands and credits in line with earnings growth.
However, he added, the precise details still need to be worked out and will be teased out after the Summer Economic Statement.
