UK Inflation Bulletin: Summer heat means a temporary boost

Simon-Kucher & Partners Inflation Bulletin

Summer heat brings temporary boost to embattled high street but focus will be on winter rail price increases

July saw another month of stable inflation with the CPIH staying at 2.3%, unchanged from June, and CPI nudging up from 2.4% to 2.5%.

UK consumer spending this summer has been shaped by two forces: the heat wave and the World Cup. Together, these boosted the retail and hospitality sectors, although the benefits have not been evenly spread.

With sustained summer high temperatures retailers have enjoyed an uptick in sales volumes on key seasonal product lines. However, pricing for clothing and footwear saw that category dip into negative inflation – a fall of 0.4% from July 2017 to Jul7 2018.

The UK holiday and hospitality sector has done well, with many people opting to stay in the UK to enjoy the decidedly un-British prolonged sunshine rather than face the sweltering heat in the Mediterranean.  The other side of the coin is bad news for airlines and package holiday companies.

The August release of the latest Retail Price Inflation (RPI) statistic is always closely monitored as this drives rail ticket pricing for the following year. The 3.2% RPI released today means we will see season tickets of £5,000 rising up to £5,160.

James Brown commented:

"Prolonged hot weather has been good news for some retailers as it has spurred purchases of ‘summer goods’ at retailers.  Where we will see the impact in pricing is likely to be reduced end of season discounting if clothing retailers and suppliers have managed to avoid over stocking. With the year on year fall of 0.4% in prices, any reduction in discounting will be welcome for retailers."

"The Office of National Statistics no longer supports RPI as a robust measure as it consistently overstates inflation, but the RPI number is pivotal for many indexes – with the July number notoriously the setting of rail ticket pricing the following January. We will see a lot of unhappy commuters with little alternative but to absorb these increases.”

 


Want to know more? Read our previous Inflation Bulletins

January 2018 | February 2018 | March 2018 | April 2018 | May 2018 | June 2018 | July 2018