UK inflation commentary - June 2017

James Brown, Partner and head of the UK Consumer & Retail practice at Simon-Kucher & Partners (the world’s leading pricing strategy consultancy), comments on today’s Consumer Price Inflation figures for June:

 

Inflation is still rising

Contrary to expectations, the CPI rate for the month of June has decreased to 2.6% from 2.9% in May, its first month-on-month fall since October last year. This was largely due to falling fuel prices which helped push the CPI rate lower, but upward pressures from higher import costs coming through still remain. We are still in a period of higher inflation, with June to be the fifth consecutive month above the Bank of England target of 2%, and also considerably higher than the 0.5% level recorded in June last year. To give some perspective, the current rate adds more than £50 extra a month to UK households’ monthly expenses covered by CPI compared to the same time last year, putting more pressure on holidays and summer outings budgets.

 

Holiday abroad? Maybe next year…

Since last year’s Brexit vote led to a subsequent depreciation of sterling, Britons have seen the cost of holidaying in Europe and the US increase. But even those who opt for “staycations” will face higher bills for some of their activities. Whether families decide to register the children to a kids’ club or summer camp, or whether groups of friends meet for drinks, they will have to pay more for it than they did last year. The figures for June showed that fees for recreational and sporting services went up by 3.5% and beer is 7.5% more expensive than last year.

 

Hot sales

Food inflation was over 3% in the 3 weeks to June 18th according to Kantar Worldpanel. And with rising food costs, shoppers are likely continue to alter their behaviours by increasingly shopping at discounters and opting for supermarket-branded, lower priced products. Over the same period, supermarket sales continued their positive growth trend from this spring. This is still early summer but supermarket sales have had their best year-on-year sales growth of the last 5 years with increased prices making a major contribution.

 

We are not only seeing direct price increases, but cuts in promotions and changes to products sizes as “shrinkflation” continues.

And whilst food prices are on the rise, the price of some much beloved seasonal treats are being kept relatively low at Wimbledon through subsidisation. Serving up a bowl of strawberries and cream for £2.50 is a sweet deal, having remained stable for the last seven years. Especially so, when considering that in the same time, the winner’s prize money has gone from £1M to £2.2M, a smashing increase!