May 2 (Reuters) - Australia's Woolworths warned of continued caution among consumers and cost-of-living pressures on Thursday, even as inflation moderated, as the supermarkets operator faced a slowdown in sales from its biggest segment, Australian Food.

Total sales for the company's Australian Food business rose just 1.5% to A$12.58 billion ($8.21 billion) for the 13 weeks period ended March 31, compared with a 5.1% at Coles, signalling that the smaller rival is slowly bridging the gap.

Outgoing CEO Brad Banducci flagged that the company is seeing a significant shift in customer sentiment and shopping behaviours since Christmas, as customers adjusted their spending sprees post the festival season.

"Customers are looking for more ways to save," Banducci said, while customer segments across the Australian Food division reported highest levels of concern amid a spark increase in the country's housing costs.

"We expect trading conditions to be challenging for the next 12 months due to competition for customer shopping baskets and as inflation returns to a very low single digit range," he added.

The country's largest supermarket operator has noticed an improvement in unit volumes, as the quarter progressed and expects stable operating conditions in the last quarter of the year.

Australia's biggest grocer said total group sales were at A$16.80 billion ($10.97 billion) for the March quarter, slightly ahead of Jefferies estimates of A$16.62 billion, and a 2.8% rise from a year earlier.

Woolies reported that prices for its food products were almost unchanged compared to the same quarter a year ago, which signifies that the rise in group sales is driven by strong volume growth across operations.

While cost-of-living pressures across Australia remained elevated, demand for groceries and essential items has stayed robust, with supermarkets passing the rising costs from suppliers on to shoppers.

($1 = 1.5326 Australian dollars) (Reporting by Rishav Chatterjee and Echha Jain in Bengaluru; Editing by Pooja Desai, Tasim Zahid and Rashmi Aich)