Coles has flagged higher prices for baked goods and fresh produce as soaring inflation continues to squeeze households at supermarkets.

Unveiling a $1.04 billion annual profit on Wednesday, Australia’s second largest grocery chain said prices across its stores rose 3.8 per cent in the six months to June – a sharp uptick from the prior half.

Recent floods pushed up produce prices while higher global prices for wheat are making baked goods more expensive, Coles told investors.

Floods in NSW particularly affected prices for soft vegetables such as tomatoes, capsicums and broccoli, which was partly offset by lower prices for bananas and grapes.

Packaged grocery prices are also rising as “various supply chain costs” bite including wages, packaging, freight and raw ingredients.

However, some prices are starting to ease, including iceberg lettuce, which has been flowing back into supermarkets in the past week.

“With Australian families facing increased pressure on household budgets, our commitment to delivering trusted value remains more important than ever,” said Coles CEO Steven Cain, who was awarded an $890,000 cash bonus for the 2022 financial year.

Coles has dropped the prices on 500 products and locked in increases on 1168 more in the past three weeks in a bid to curb soaring prices. Despite this, more of its suppliers are requesting price increases.

Some suppliers are even coming through with their second or third rounds of price hike requests – reflecting higher costs for businesses.

But Coles itself has managed to increase its gross margins over the year, with various cost reduction initiatives helping the company achieve a sizeable 4.3 per cent uplift in its net profit after tax (NPAT).

Investors will receive a 30 cent per share dividend worth an estimated $401 million.

Mr Cain said the availability of local produce was “steadily improving” after recent floods in NSW, while the “international supply chain remains more volatile” amid ongoing disruptions and the Ukraine war.

Despite higher prices, demand among shoppers remained strong, with sales volumes holding up and evidence of customers moving to cheaper goods evident only among the poorest of Coles’ shoppers.

Mr Cain said shoppers were, however, purchasing more $1 pasta and $1 coffee at Coles Express – products that have “never been more popular”.