Evaluate whether inflation is the most damaging economic factor for a UK supermarket chain (12 marks)

Question: Evaluate whether inflation is the most damaging economic factor for a UK supermarket chain such as Tesco. (12 marks)

Mark scheme (Levels-based):

• Level 1 (1–3): Identifies inflation effects — rising costs, price rises.
• Level 2 (4–6): Applied analysis of inflation — Tesco faces higher supplier costs (energy, wages, agriculture); CPI peaked at 11.1% in Oct 2022; passes some costs on but loses market share to Aldi/Lidl.
• Level 3 (7–9): Compares with other factors — unemployment (low UK unemployment raises wage costs); interest rates (higher rates reduce consumer credit-funded spending); exchange rates (weak pound raises import costs of non-UK food).
• Level 4 (10–12): Justified evaluation reaching a supported conclusion. E.g. 'Inflation is highly damaging because it simultaneously raises costs and reduces real consumer income — a double squeeze. However, supermarkets sell necessities (income-inelastic), so demand is more resilient than for luxury businesses. Therefore, while inflation is significant, interest rates could be argued as more damaging long-term because they affect Tesco's £10bn+ debt servicing costs and capital investment in stores. The most damaging factor depends on time horizon and Tesco's strategic priorities.' MUST reach a clear, justified judgement.