View From City Road: Not all mums went to Iceland

Just 12 months ago, everyone was forecasting armageddon for supermarkets. Price wars had made food retailers' profits as unpredictable as the direction of their trolleys. The race for space meant almost every shopper could chose between at least two supermarkets - and they were increasingly eschewing both.

The price cuts necessary to entice them back would ravage supermarket margins while the need to write down surplus space would destroy their balance sheets. Even a 40 per cent mark- down in the sector's shares failed to attract the bargain hunters.

Just a year later, and attitudes could hardly be more different - witness the share price rise after Iceland Group's results yesterday. It reveals a 2.5 per cent increase in sales following its 'Great Iceland Giveaway' promotion and predicts that price deflation is about to disappear. The shares soared 20p to 165p.

Yet the sales rise is over a mere six weeks, and it has had to launch a second campaign to keep the momentum going. Giving away fish fingers has also meant giving away margin - an estimated three points off the gross in the second half of the year. And price deflation is only disappearing because we are approaching the anniversary of the more savage price cuts; the low prices are still very much here.

The sector's shares have risen about 25 per cent relative to the market.

Customers are less easily fooled. They know that supermarkets can afford to cut their prices - and are prepared to stage buying strikes to force them to, if necessary. Supermarkets, and their shareholders, should remain on guard.