Safeway said Thursday that it has passed along to consumers higher prices sparked by inflation as the Pleasanton-based grocer posted profits that beat predictions.

Safeway earned $25.1 million on sales of $9.77 billion, for the first quarter. Excluding one-time items related to taxes, Safeway would have earned 29 cents a share. Analysts expected a profit of 23 cents and sales of $9.3 billion.

Yet because shoppers are under siege from food and fuel prices that have skyrocketed, shares of Safeway, Whole Foods, Kroger and other grocers plunged Thursday on fears over sales growth. Safeway's shares fell 2.7 percent, or 67 cents, closing at $24.61. The supermarket group fell an average of 0.6 percent Thursday, Bloomberg News reported.

"We are successfully passing cost inflation along at retail, while making appropriate price adjustments to remain competitive," said Steve Burd, Safeway's chief executive officer.

Safeway's move to pass along inflation costs were a fresh indicator that a surge in prices has begun to squeeze consumers.

"There is no doubt that we are having inflation," said George Whalin, principal executive with Carlsbad-based Retail Management Consultants. "Fuel costs are causing shipping costs to rise. Safeway can't simply eat those expenses. They have to pass those along."

During a conference call with analysts, Burd warned that price pressures would increase further on store shelves between now and year's end.


Advertisement

"Inflation will get stronger as we move through the year," he said.

Part of the problem is that the rising prices are broad-based.

"Commodities from grains to meats are going up in price, and in some cases, substantially," Whalin said. "Beef prices are much higher."

Over the 12 months that ended in March, prices for ground beef have soared 21 percent. During the first three months of this year, prices for that grade of beef are up 14 percent.

A growing number of economists blame rising inflation on Federal Reserve policies of printing dollars to buy Treasury notes. The government is issuing Treasuries at a brisk pace to finance a record level of federal government debt for the inflation.

"The Fed's actions are devaluing the dollar and causing inflation," said Gerard Adams, president of the National Inflation Association, a New Jersey-based group that is tracking inflation trends.

The flood of additional dollars through the Fed's "Quantitative Easing" program reduces the price of the dollars and increases the value of commodities such as food and fuel, along with stock prices.

Fed chairman Ben Bernanke, in a news briefing Wednesday, downplayed the effects of inflation and said the bond-buying program would on schedule in June.

"Our expectation is that inflation will come down and towards a more normal level," he said. In other statements, the Fed has described inflation as "transitory."

"Our first-quarter results are in line with our expectations, and we are pleased with our improving sales trends," Burd said. "Identical-store sales, excluding fuel, improved for the fifth consecutive quarter and are now positive."

The supermarket shares tumbled on a day the S&P 500 rose 0.4 percent. Analysts feared that consumers will curb spending because higher prices have chewed up their wallets.

"Consumers will not open their pocketbooks and start spending more," Whalin said. "Unemployment is still too high, especially here in California. The housing situation is not solved yet. We have issues still in the economy."

Contact George Avalos at 925-977-8477. Follow him at Twitter.com/george_avalos.