Grocery inflation at Coles worsened towards the end of last year, but the supermarket chain says price pressures are easing in early 2023.

Coles revealed on Tuesday that prices across its stores rose 7.7 per cent in the last quarter of 2022, up from 7.1 per cent in the prior period.

The retailer said higher prices for dairy products, including milk, and inflation in home care and pantry products drove price growth higher.

Higher prices for poultry, pork and baked goods were also singled out.

“Freight and utilities were the main drivers of the suppler input cost price increase request,” Coles told investors in an ASX statement on Tuesday.

But the good news is that inflation in fresh produce is falling sharply as farmers recover from floods in 2022. Goods such as tomatoes, broccoli and capsicums are among those that fell in price in late 2022 and into 2023.

“Supplier cost inflation is starting to ease in the third quarter, particularly in produce,” Coles boss Steven Cain, who also unveiled his resignation on Tuesday, said in a statement.

“Many of our suppliers are, however, still facing increasing cost pressures and shortages of pallets, raw materials and labour.”

Mr Cain will step down as Coles chief in May. He will be replaced by Leah Weckert, who will become the supermarket giant’s first female CEO.

Coles posted a $616 million net profit for the half ended January 1, an 11.4 per cent increase on the same period just 12 months ago.

Sales rose 3.9 per cent to $20.8 billion, the supermarket giant revealed. It was made up of $18.9 billion from sales at its 842 supermarkets and $1.9 billion from sales at its 940 liquor stores.

The company declared a 36 cent per share investor dividend, up 9.1 per cent on the prior period.

Coles said its gross margins increased 0.43 percentage points year-on-year to 26.5 per cent – driven by a reduction in COVID costs, strategic sourcing and changes to its product mix.

It said the increase was “partially offset” by absorbing some inflation and “increasing headwinds in markdowns and stock loss as a result of increasing theft.

The company expects inflation to moderate from the peak seen in the second quarter, but also anticipates customers being more value conscious as cost-of-living pressures increase.

“We are seeing customer behaviours shifting to more value-oriented choices, as a result of higher inflation and interest rates and the cost of energy increasing,” chief financial officer Charlie Elias told analysts.

Coles’ rival Woolworths will report its half year results on Wednesday.